..:: blackstone franks - the budget 2008 :::........

BLACKSTONE FRANKS LLP

THE BUDGET 2008
CONTENTS

The New Tax Rates at a Glance

Income Tax
Income Tax Rates
Personal Allowances
Alternative Finance Arrangements
Venture Capital Schemes
Individual Savings Accounts
Gift Aid
Settlor Interested Trusts
Child Trust Funds
Social Security Exemptions
Armed Forces Council Tax Relief
Foreign Dividend Income

Domicile and Residence

Employee Taxation
Company Cars
Fuel for Vans Provided by Employers
Enterprise Management Incentives
Employment-Related Securities
Pensions

Corporation Tax
Rates
Simplification of Associated Companies Rules
Contributions to Approved Occupational Pension Schemes
Research and Development and Vaccine Research
Corporate Intangible Assets Regime
Controlled Foreign Companies
Capital Allowance Buying and Acceleration
North Sea Management Expenses
Funding Bonds
Life Insurance Companies

Business Tax
Capital Allowances
Community Investment Tax Relief and Banking
Trading Stock
Lease Plant or Machinery
Financial Products Avoidance - Disguised Interest
Investment Management Exemption
Offshore Funds: New Tax Regime
Timing of Income Tax Payments by Unauthorised Unit Trusts
Funds of Alternative Investment Funds
Property Authorised Investment Funds
Restriction of Trade Losses for Individuals
Double Tax Relief: Income Tax
Double Taxation Treaty Abuse
Manufactured Payments

Capital Gains Tax
Annual Exemption
Rate
Entrepreneurs Relief
IHT Values

VAT
Registration Threshold
Correction of Errors
Fuel Scale Charge
Transitional Period For Late Claims
Option to Tax
Smoking Cessation Products
Fund Management Exemption

Stamp Duty Land Tax and Stamp Duty
Stamp Duty: SUKUK
Stamp Duty: Loan Capital Exemption
Stamp Duty: £5 Fixed Charge
SDLT New Zero-Carbon Flats
SDLT Notification Thresholds
SDLT Other Administrative Changes
SDLT On Property Investment Partnerships
SDLT Group Relief Avoidance
SDLT Alternative Finance Arrangements

Other Taxes
Inheritance Tax
Threshold
Transitional Serial Interests
Pension Savings
Landfill Tax
Rate of Tax
Landfill Communities Fund
Exemption for Clearing Contaminated Land
Aggregates Levy
Climate Change Levy
Rate
Electricity from Coal Mine Methane
CCL Accounting Documents
Fuel for Yachts and Private Planes
Waste Oil Recovery
Alcohol Duties
Tobacco Products Duty
Amusement Machine Licence Duty
Gaming Duty
North Sea Fiscal Regime
Aviation Duty
Hydrocarbon Oil Duties
Insurance Premium Tax

Miscellaneous
Penalties for Value to Notify and other Failures
Compliance Checks
Payments, Repayments and Debt
Changes to Customs Powers
Tribunal Reform
Excise Reviews
Natural Disasters
Extra-Statutory Concessions
Tax Avoidance Disclosure Regime
Single Use Carrier Bags

WARNING
This memorandum is based on the proposals put forward by the Chancellor in his Budget speech. These need to be approached with caution, as the details are liable to change during the passage of the Finance Bill through Parliament. Where these proposals are likely to affect a decision that you need to make you should, if possible, delay at least until the Finance Bill becomes available.

© Blackstone Franks 2008
Barbican House
26 -34 Old Street
London EC1V 9QR

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THE NEW TAX RATES AT A GLANCE

.
Proposed
.
.
2008/09
2007/08
Income Tax
.
.
Reduced rate
n/a
10%
- on income up to
-
2,230
Basic Rate
20% *
22%
- on income up to :
36,000
34,600
Higher rate on excess :
40%
40%
* There will be a new starting rate for savings income only, with a limit of £2,320. If an individual's taxable non-savings income is above this limit then the 10% savings rate will not be applicable. There are no changes to the 10% dividend ordinary rate or the 32.5% dividend upper rate.
.
£
£
Income Tax Reliefs
.
.
Personal allowance (age under 65)
5,435
5,225
Age allowance
.
.
- if 65 or over by end of tax year
9,030
7,550
- additional if married and either spouse over 65 at 6 April 2000
6,535**
6,285**
- if 75 or over by end of tax year
7,690
7,690
- additional if married and either spouse over 75 at 6 April 2000
6,625**
6,365**
(The excess of age relief over the personal allowance is reduced by half of the excess of income over £21,800 in 2008/09 (£20,900 in 2007/08)
.
.
Blind persons relief
1,800
1,730
Maximum Enterprise Investment Relief (restricted to 20%)
** Relief is restricted to 10%
500,000
400,000
Corporation Tax Rates
2006/07
2006/07
Small company rate (£0-£300,000)
21%
20%
Main rate (over £1,500,000)
28%
30%
Effective marginal rate (£300,000 -£1,500,000)
29.75%
32.5%
Fraction for marginal rate relief
1/400
1/40
Capital Gains Tax
.
.
Annual Exemption for individuals
£9,600
£9,200
Inheritance Tax
.
.
Nil Rate Band
£312,000
£300,000
VAT
.
.
VAT Registration Threshold
£67,000
£64,000

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INCOME TAX

Income Tax Rates

The main change is of course the previously announced reduction in the basic rate of tax to 20% from 6 April. The income tax bands for 2008/09 are again increased in line with inflation, except for the starting rate which is abolished for earnings, pensions, taxable social security benefits and rental income, but not for savings income, i.e.

Up to £36,000 20%
Excess over £36,000 40%

If non-savings income is less than £2,320 the difference between it and £2,320 is taxed at 10%.

Dividends

Up to £36,000 10%
Excess over £36,000 32.5%

UK resident individuals and UK and other EEA nationals who receive dividends from non-UK companies will benefit from a 10% non-repayable tax credit in the same way as they currently do for dividends from UK companies. This will not apply to people who hold 10% or more of the shares in the company. Such people will be eligible for the tax credit from 6 April 2009, unless the source country does not levy a tax on corporate profits similar to corporation tax. There will be anti-avoidance measures to ensure that these new rules are not subject to abuse.

Personal Allowances

The standard personal allowances are also increased in line with inflation, and, as promised last year, the age allowance rises by inflation plus £1,180 i.e.
  2008/09 2007/08 increase
Personal allowance £5,435 £5,225 £210
Age allowance - up to age 75 £9,030 £7,550 £1,480
Age allowance - 75 and over £9,180 £7,690 £1,490

Alternative Finance arrangements

The law will be changed, from the date when the Finance Bill receives Royal Assent, to allow for amendments to the rules on existing alternative finance arrangements (it does not do so at present) as well as to new arrangements.
Blackstone Franks' Reaction:
Alternative Finance, or Shariah Compliant, arrangements were introduced to cope with the Muslim ban on interest payment and receipts. Sadly, the tax avoidance industry is seeking ways to use these rules for nefarious purposes, so we suspect that HMRC would like to be able to block such schemes quickly.

Venture Capital Schemes

The annual limit for investments qualifying for relief under the Enterprise Investment Scheme is increased from £400,000 to £500,000. This requires EU approval but, if and when this is obtained, the measure will take effect from 6 April 2008.

The activities of shipbuilding and of coal and steel production will be excluded from the EIS scheme and from the Corporate Venturing Scheme (CVS) and the Venture Capital Trust (VCT) scheme. This will apply from 6 April 2008.

A consultation document has been issued on the Enterprise Investment Scheme, seeking views on how it might be made more attractive to potential investors. Apparently only 65% of potential investors have even heard of EIS.

Individual Savings Accounts

As announced on 18 October 2007, individuals who withdrew cash from their Northern Rock ISAs between 13 and 19 September 2007 can reinvest them in a new ISA (either with Northern Rock or another provider) without it counting towards their annual ISA subscription limit. They have until 5 April 2008 to do so.

In order to reduce the administrative burden on ISA managers, they will, on and after 6 April 2008, make an annual statistical return detailing subscriptions received after the end of each tax year; they are currently required to submit quarterly returns. The requirement to make an annual 'market value' return will remain.

ISA managers and financial institutions need no longer retain investors' original application. Those that choose not to retain them will, however, still be required to record the information contained in the application and to send a written copy of confirmation to the customer. The original application can then be destroyed.
Blackstone Franks' Reaction:
Northern Rock is of course the only ISA provider which is backed by a government guarantee!

Gift Aid

The reduction in the basic rate of tax obviously reduces the tax that can be reclaimed by charities on gift aid donations. To ease the pain they will receive a 2% supplement until 5 April 2011, so that if net donations remain the same, so will the refund.

Settlor Interested Trusts

Legislation will be introduced in Finance Bill 2008 to rectify, with effect from 6 April 2006 an unintended consequence of the Trusts Modernisation Legislation in Finance Act 2006. Currently a non-settlor beneficiary of such a trust who receives discretionary income from it and also has savings and/or dividend income, may find that the non-trust income is pushed into higher rates so that more tax is due overall.
Blackstone Franks' Reaction:
We believe that an "unintended consequence" is what used to be called a "mistake". However it is a nice modern term that avoids the unpleasant connotation that someone in the Treasury or HMRC might not have been as careful as he should have been.

Child Trust Funds

The parent must at present hand over the Child Trust Fund (CTF) voucher to the CTF provider and distributor by the expiry date in order to open an account. From 6 April 2009, it will be possible to open accounts without the voucher, using essential information provided by the customer from the CTF voucher, such as the unique reference number, the child's date of birth and the voucher expiry date. This change will allow, for example, telephone and internet applications for CTF accounts to be made in a single paperless transaction without the need for the customer to post the voucher separately.
Blackstone Franks' Reaction:
We welcome simplification, no matter how timid it may be!

Social Security exemptions

Legislation will be introduced in Finance Bill 2008 to exempt from both income tax and NIC, payments made under the following schemes, on and after 6 April 2008:

o Return to Work Credit;
o In-work Credit;
o In-work Emergency Discretion Fund; and
o In-work Emergency Fund.

In a separate measure, payments under the new GLA severance pay scheme will be tax-exempt up to the first £30,000. This will bring their tax treatment into line with that of payments under similar schemes for Westminster MPs and members of the devolved administrations.

Armed Forces Council Tax Relief

Payments under the new Armed Forces Council Tax Relief Scheme will be exempt from tax. This is payable to forces serving in specified operational locations.

Foreign Dividend Income

The Tax Law Rewrite accidentally taxed at 32.5% instead of 40% remitted foreign dividend income of a person on the remittance basis of taxation. This error will be corrected from 6 April 2008.

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DOMICILE AND RESIDENCE

The Chancellor has approved a number of changes to his proposed new system for taxing non-UK domiciled residents.

1. The proposed new test of counting days spent in the UK to determine whether a person is UK resident has been relaxed. A person will be regarded as present in the UK on a day in applying the 182 and 90 day tests, only if he is here at midnight on that day (instead of here for any part of the day). A person who comes to the UK on Monday morning and leaves on Wednesday evening will be here for two days not three as originally proposed. In addition a person who simply passes through the UK on his way to another country will be treated as not being here at all (even if he stays overnight) unless while in the UK he engages in an activity that is unrelated to his passage through the UK.
Blackstone Franks' Reaction:
These are welcome relaxations. The French businessman who comes to the UK for a business meeting and returns to France the same day will not have to count that day as a day of presence. Of course it also means that the tax exile who flies in from Jersey or Monaco on a Monday morning and flies out again Thursday night (the main target of the original proposal) will not have to modify his behaviour too significantly to remain non-resident!
.
2. The £30,000 fee to remain on the remittance basis will no longer be a fee; it will be tax payable on part of a person's unremitted income or gains in order to leave the remainder on a remittance basis. The individual can choose to which unremitted income or gains the tax relates. If he later remits that amount it will not be taxed again.
Blackstone Franks' Reaction:
This is good news. It should make the £30,000 a creditable tax in other countries under the UK's double tax agreements. It is however likely to be an administrative nightmare to be able to identify what overseas income or gains have been taxed and so can in future be remitted tax free. It is probably good news for overseas banks as it will probably mean non-doms having to maintain lots more overseas bank accounts. Untaxed overseas income will be deemed to be remitted before such deemed taxed income, so it needs to be kept separate so that it can be remitted in preference to untaxed amounts. The timing of remittances also becomes crucial. A remittance in the year will not count towards the £30,000. Accordingly if money is needed here during the year it may be necessary to borrow overseas funds and remit those, with the borrowing being repaid the next year out of the income or gains on which the charge is paid. It will also enable a large gain to be remitted at the rate of £166,000 a year with the £30,000 charge franking the remittance.

3. Children under 18 at the end of the tax year will not have to pay the £30,000 charge.

4. The £30,000 payment to HMRC will not itself be regarded as a remittance (unless it is later repaid by HMRC) only if it is paid direct from an overseas bank account to HMRC by cheque or electronic transfer - which will of course tell HMRC about the existence of the account.

5. The de-minimis exemption will be £2,000 instead of £1,000 as originally proposed.
Blackstone Franks' Reaction:
These are of course all welcome relaxations. However we fear that most of those non-doms who are packing their bags to either return home or move to a more friendly country, such as Ireland, are likely to consider them too little too late. For those whose jobs do not permit them to leave, the administrative burden created by the complexity of these new rules is an additional price to pay to obtain the benefit of the remittance basis.

6. The new remittance rules are also modified slightly. Clothes, shoes, jewellery and watches can be brought into the UK without triggering a remittance charge. So can any other asset costing less than £1,000, assets brought here for repair and restoration, and any other asset that is brought into the UK for less than a total nine-month period. There will also be a blanket exemption for assets owned at 11 March 2008. However where an asset brought into the UK triggers tax under the current rules (which it can do on employment income and capital gains) the current rules remain in place.
Blackstone Franks' Reaction:
This removes the most nonsensical features of the proposals and should make the remittance of assets rules workable.

7. The rules on remittances from mixed funds will be changed - but we don't yet know what the new rules will be; only that they will be more comprehensive than those in the draft legislation.

8. The rules under which third parties can trigger a remittance if they bring into the UK assets gifted to them overseas will be significantly limited. The remittance must be by the individual's spouse (or civil partner or live in partner) or children or grandchildren under 18. However it will also extend to remittances by close companies (or overseas companies that would be close if they were in the UK) of which the individual or one of the above close family members is a participator (such as a shareholder or a person who has lent money to the company) and by trusts of which the individual or close family member is a settlor or a beneficiary.
Blackstone Franks' Reaction:
This is a welcome relaxation. You can now give a Christmas present to your brother-in-law without fearing that he may some day bring it into the UK. However you still need to watch how your infant children spend their presents as the remittance charge is triggered merely by bringing the asset into the UK; the individual who made the gift does not have to benefit from it. The extension to remittances by close companies seems particularly harsh. It will effectively prevent such companies using in the UK an overseas loan from the individual for the needs of its own business.

9. Income and gains of overseas trusts will not be taxed on the settlor (as such) if he is non-dom (except where they are taxable under the current rules); they will be taxable on a beneficiary who receives a benefit from the trust (which will include the settlor in his capacity as a beneficiary).
Blackstone Franks' Reaction:
This is a welcome, although somewhat surprising, relaxation. Long live the offshore trust? An offshore trust might still be a useful vehicle to defer tax. In some cases it also of course has IHT benefits.

10. Capital payments from an offshore trust received by the beneficiary before 6 April 2008 will not be matched with post 6 April gains (but capital payments after 5 April will be matched against post 5 April income or gains in priority to earlier payments).

11. Non-resident trustees will be given an option to rebase trust assets to market value at 6 April 2008. The election must be made in relation to all of the assets in the trust (and in any underlying company if the gains would be apportionable to the trust under TCGA 1992, s 13(10)). The election must be made by 31 January following the first tax year in which any capital payment is made to a UK resident beneficiary (whether remitted or not) or a part of the trust fund is transferred to a new settlement and TCGA 1992, s 90 applies on the transfer. Where the election is made there will be a deemed disposal and reacquisition at 5 April 2008. The election is irrevocable.
Blackstone Franks' Reaction:
This is good news. It goes beyond what we were expecting. It is hard to envisage circumstances where the election ought not to be made. The obvious one is if the trust assets show losses. The only downside is that it may mean letting HMRC know of the existence of the trust and the identity of the trustees (and probably details of the assets) at a time before one's tax charge arises.

12. Where trustees make a rebasing election any surplus capital payments to beneficiaries between 12 March and 5 April 2008 will be matched with the pre April element of the gain - to ensure that post 5 April payments are set against the post 5 April element of the gain.

13. Capital payments after 5 April 2008 will be matched with trust gains on a last in, first out, basis (instead of the current FIFO basis).

14. The proposed requirement for a non-UK domiciled settlor to notify HMRC of the existence of overseas trusts has been dropped.

15. The rules in relation to offshore income gains of non-UK trusts are also modified.

16. There is no rebasing of gains in offshore companies (except to the extent that they are apportionable to an offshore trust).
Blackstone Franks' Reaction:
HMRC told some professional bodies that there would be such rebasing. It is accordingly unfair to now say otherwise at such a late stage. To be fair, this is probably the result of the confusion even within HMRC of what the Chancellor intended rather than a change of heart by Mr Darling.

17. The statement that a non-domiciled individual will not have to provide information about the source of his remittances also turns out to be untrue. He will have to provide such information if HMRC enquire into his tax return or if the trustees choose to make a rebasing election.

18. UK tax relief will in future be given for overseas losses on non-doms. Where the individual claims the remittance basis he will have to make an irrevocable election and will also have to disclose details of unremitted capital gains as part of the price of doing so.

19. Where an existing foreign mortgage is secured on a residential property in the UK, the payment overseas of the mortgage interest after 5 April 2008 for the remaining period of the loan (or until 5 April 2008 if earlier) will not trigger a remittance. If the terms of the loan are varied or further advances made after 12 March 2008 the repayments after the date of variation, etc will be treated as remittances though.
Blackstone Franks' Reaction:
Another very welcome relaxation. Note, that it applies only to residential mortgages. It is not clear if it applies to let properties. That seems unlikely! It will also apparently not apply to a remortgage or the renewal of a short-term mortgage. It is unclear if it will apply to interest on a loan to buy the property if it is not secured on it.

20. As previously announced, works of art will be able to be brought into the UK for public display without triggering a remittance.
Blackstone Franks' Reaction:
But they will not be able to be brought here for sale or solely for the individual's own enjoyment.

21. The tax charge on employment-related securities will be extended to cover employees who are resident but not ordinarily resident in the UK.

22. The Chancellor has said that no further changes will be made to the system of taxing non-doms during the life of this parliament or the next, i.e. for the next four or five years.

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EMPLOYEE TAXATION

Company Cars

The company car use rate will be set in the Finance Act for 2010/11 and subsequent years. It is intended to reduce the lowest threshold (which attracts a 15% rate) from 135g/km to 130g/km from 2010/11.

Fuel for vans provided by employers

Legislation will be introduced in the Finance Act to ensure that reimbursement of private fuel cost is not treated as earnings for tax purposes, and that the same rules apply to the provision of van fuel for private use as those that currently have effect for company car fuel.

Enterprise Management Incentives

To ensure compliance with EU State aid guidelines, the Finance Act will make two changes with effect from the date of Royal Assent: (probably July).

o Companies with 250 or more employees' will no longer be able to offer EMI options.
o Companies involved in shipbuilding, coal and steel production will cease to qualify for EMI.

Regulations will be made to increase, from 6 April 2008, the individual employee limit on grants of EMI qualifying options from £100,000 to £120,000.

Employment-Related Securities

Some promoters of avoidance schemes have argued that deductions for 'amounts that constitute earnings' can include earnings which were exempt income and therefore not charged to income tax. This both reduced the amounts which counted as employment income and chargeable gains, and increased the corporation tax relief available. The wording will be amended to ensure that this is no longer the case from 12 March 2008 and that only income subjected to income tax falls within the definition.

Pensions

Migrant workers in the UK and their employers can obtain tax relief on contributions to non-registered pension schemes based outside the UK. In order to apply appropriate UK tax controls on reliefs equivalent to those for registered pension schemes it is necessary to work out how much UK tax relief has been received on the individual's pension fund. Currently, the larger the employer contribution, the lower the proportion of an individual's pension fund that is treated as having received UK tax relief. The rules will be changed from 12 March 2008 so that the amount of the employer's contribution will not affect the calculation of the proportion of the individual's fund that attracts UK tax relief.

Existing regulation-making powers are to be to be amended to:

o allow certain payments from pension schemes to be credited as authorised instead of unauthorised payments; and
o simplify the administration of certain trivial commutation payments.

Further changes will simplify the way the pension tax rules operate when testing pension increases against the lifetime allowance.

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CORPORATION TAX

Rates

The proposed reduction in the main rate of corporation tax from 30% to 28% for 2008/09 has been confirmed, as has the increase in the Small Companies rate from 20% to 21%.

The Small Companies rate is due to increase to 22% in 2009/10.

Simplification of Associated Companies Rules

For small companies rate purposes only, the rights and powers of business partners will not need to be attributed to an individual who is a director or a shareholder to determine control of that company from 1 April 2008 unless "relevant tax planning arrangements have at any time had effect in respect of the taxpayer company".

Blackstone Franks' Reaction:
This is a welcome change although it does not deal with all of the anomalies in relation to associated persons in respect of the small companies rate. It will mean that an investor in a large investment limited partnership or LLP who also controls his own company will not have to take account of companies controlled by other investors in the limited partnership. Similarly a partner in a trading partnership will not need to take account of companies controlled solely by his fellow partners. In practice most people have either overlooked or ignored the current law. The change brings the law into line with commonsense.
..
Contributions to Approved Occupational Pension Schemes

The Finance Act will confirm that the amount a company is allowed to deduct in respect of payments made into an Approved Occupational Pension Scheme between 1 April 2004 and 5 April 2006 is equal to the actual cash contribution made during the year. This measure is unashamedly retrospective. It prevents a deduction being claimable on an accruals basis, which some people believed that the Finance Act 2004 allowed.

Research & Development and Vaccine Research Relief Schemes

From 1 April 2008 the rate of Research & Development (R&D) relief for large companies increases from 125% to 130% of qualifying expenditure.

For small and medium sized companies, the increase is from 150% to 175% of qualifying expenditure. However, if the company cannot utilise the enhanced expenditure it can claim a repayment from HMRC equal to 16% of the surrendered enhanced expenditure. The increase in relief for small & medium sized companies is subject to approval by the European Commission.

The Finance Act will also introduce two new conditions: the company will not be allowed the relief if the most recent accounts have not been prepared on a going concern basis and a cap on the amount of relief available per R&D project is to be introduced at €7.5 million. Both of these conditions have been imposed by the EU.

Corporate Intangible Assets Regime

The Finance Act will clarify that the related party rules are unaffected by any administration, liquidation or other insolvency proceedings or equivalent arrangements that any company or partnership may be involved in.

Controlled Foreign Companies

Anti-avoidance rules will be introduced to prevent the use of a partnership or a trust in an attempt to escape a CFC charge. HMRC does not believe that such schemes work so this is a just-in-case measure.

Capital Allowance Buying and Acceleration

Legislation will also be introduced with effect from 12 March 2008, to counter schemes under which a profitable group purchases a company whose written down value of its plant and machinery pool is far in excess of the market value of the assets held, in order to obtain a balancing allowance on disposal of the trade (rather than the company) to a third party, rather than with the intention of carrying on the trade. The legislation will require the whole capital allowances pool to be carried over to the person buying the trade for the long term so that the sale will not generate a balancing charge.

North Sea Management Expenses

Legislation will be included in the Finance Act (effective 12 March 2008) to close a loophole in the rules governing the taxation of oil and gas production. It will do so by disallowing expenses of managing an investment business as a deduction against a company's ring fence oil and gas profits.

Funding Bonds

The Finance Act will provide rules to confirm that from 12 March 2008 where the tax deducted from interest was originally paid to HMRC in the form of funding bonds they can use all or part of those funding bonds to satisfy any repayment claim in respect of such tax. The legislation will allow HMRC to request that the bond issuer divides, if necessary, any funding bond held by HMRC so that the repayment claim can be satisfied using part of the funding bond.

Life Insurance Companies

A number of changes are proposed to the taxation of life insurance companies. We have not covered these, as they are unlikely to be of interest to most of our clients.

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BUSINESS TAX

Capital Allowances

The changes that were announced in the 2007 Budget to the Capital Allowances system to take effect from 1 April 2008 (6 April for individuals) have been implemented as expected

a) Plant and Machinery Writing Down Allowance has been reduced to 20% from 25% on any unrelieved and new qualifying expenditure. Where an accounting period spans 1 April the allowances are apportioned, the old rate applying to the pre 1 April part and the new rate to the balance.

b) Long Life Asset Pools will cease to exist from 1 April 2008. Any unrelieved expenditure will be reallocated to a 'special rate pool' and relieved at a rate of 10% per annum. New expenditure which attracts the 10% allowance will be added to this pool.

c) A new rate of 10% will apply to certain fixtures that are integral to a building. Some items of plant and machinery that have in the past qualified for the full Writing Down Allowance will in future come under this heading, such as expenditure on lifts. Expenditure on some previously controversial items, such as lighting, will now qualify under the new regime as will new expenditure on cold water supplies. In addition, expenditure on thermal insulation for existing buildings will now qualify for the 10% relief. Replacement expenditure in relation to such assets that might in the past have attracted a revenue deduction will in future be treated as capital expenditure if more than 50% of the initial cost of the asset is replaced in a 12-month period.

d) The majority of First Year Allowances (FYA) are being replaced by a new Annual Investment Allowance (AIA) giving 100% relief for the first £50,000 of expenditure regardless of the size of the business (proportionally reduced with respect to the length of the period). Almost all expenditure that qualifies for relief under the capital allowances regime will qualify for AIA with the exception of cars. Grouped companies will have to share a single allowance between them.

e) From 1 April 2008 if the balance of expenditure in either the main pool or the special rate pool falls below £1,000 the balance can be wholly written off as an allowance.

f) Agricultural Buildings Allowances are being phased out as previously announced. The rates of allowance are

Year to 31 March 2009 3%
Year to 31 March 2010 2%
Year to 31 March 2011 1%
Year to 31 March 2012 nil

g) Special rules apply to enterprise zone capital allowances. These will continue to attract the current 25% rate until 31 March 2011. They will attract no allowances thereafter but will attract a balancing charge if the property is sold within 7 years of first being brought into use.

h) From 2008/09 losses augmented by Enhanced Capital Allowances (ECA) for environmentally beneficial and energy saving technologies can be surrendered for a cash payment of 19% of the loss that is attributable to such expenditure (subject to a cap of the higher of £250,000 or the company's PAYE/National Insurance Contributions). The rate of allowance for ECA remains at 100% of the qualifying expenditure (a revised list of all expenditure that qualifies for ECA will be available from HMRC before parliament recess in the Summer).

i) The 100% first year allowance for expenditure on natural gas and hydrogen refuelling equipment that was due to expire on 31 March 2008 has been extended to 31 March 2013. It will also now cover refuelling equipment for biogas.

j) The 100% first year allowance for cars with CO2 emissions not exceeding 120g/km is similarly extended to 31 March 2013 but the qualifying CO2 limit reduces to 110g/km. There will be a transitional rule on leased cars. They will retain the 100% allowance where the CO2 figure is between 110 and 120g/km.

Blackstone Franks' Reaction:
There are obviously winners and losers from these changes. The Annual Investment Allowance is likely to allow most very small businesses to obtain full relief for their expenditure in the first year. However some may need to monitor their expenditure fairly carefully. For example a business that spends £60,000 in 2008/09 and £20,000 in 2009/10 will get allowances of £50,000 in year 1, £22,000 in year 2, £1,600 in year 3, £1,280 in year 4 and reducing allowances thereafter. If it spends £50,000 in 2008/09 and £30,000 in 2009/10 its allowances will be £50,000 for 2008/09 and £30,000 for 2009/10.
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Community Investment Tax Relief and Banking

This scheme allows relief to individuals or companies that invest in accredited Community Development Finance Institutions (CDFI). The relief is linked to the amount invested. The legislation will be treated as having always been in effect. The Finance Act will allow banks that invest in CDFI under the Community Investment Tax Relief Scheme to receive monies from the CDFI in the normal course of business without having their relief under the scheme reduced.

Trading Stock

When trading stock is appropriated or disposed of other than by way of a trading transaction, the Courts have held that it must be treated as disposed of at market value. However under UK GAAP the item must be treated as disposed of at either cost or the price actually paid. As accounts prepared in accordance with GAAP are now the starting point for calculating taxable profits, a rule will be introduced in the Finance Act to apply the traditional market value rule instead of the GAAP rule.

Leased Plant or Machinery

There will be an anti-avoidance provision to prevent businesses generating a loss from exploiting the different ways in which GAAP allows lease rentals paid and received to be treated. The sort of arrangements this change is aimed at are where a capital sum is received as a premium on a lease with an attached peppercorn rent, and mismatched lease chains that exploit the ways in which leases are taxed. In both cases, the business will be taxed on a commercial basis by effectively looking through the transactions.

The effective date of the new legislation is 13 December 2007, so any transactions entered into after that date will be subject to the new legislation.

Financial Products Avoidance - Disguised Interest

Legislation will be introduced in the Finance Act to address a number of avoidance schemes that have been notified to HM Revenue & Customs under the disclosure rules introduced in Finance Act 2004. Most involve arrangements that give rise to amounts that in substance are interest but which are designed not to be taxable as interest ("disguised interest"). One involves an arrangement which aims to exploit existing legislation on disguised interest so as to generate artificial losses.

Investment Manager Exemption

The Investment Manager Exemption (IME) allows non-resident companies, individuals and funds to appoint a UK-based investment manager to carry out transactions on their behalf without being subject to UK tax. The Finance Act (once it receives Royal Assent) will bring together all the transactions that are covered by the legislation and ensure that all transactions that meet the IME conditions qualify for IME (which is currently not the case!).

Offshore Funds: New Tax Regime

Powers will be provided to regulators of offshore funds to class them as 'reporting funds'. In effect, the fund will still have to prove that it qualifies as a qualifying fund each year (albeit that the new rules will be less onerous). Such a fund will not have to distribute 85% of its funds each year but the investors will be chargeable to income tax on the amounts 'reported' to them even though they do not receive the money. Such a status will enable profits on a disposal of the investment to be taxed as capital gains, not as income.

Timing of Income Tax Payments by Unauthorised Unit Trusts

With effect from the tax year 2008/09 and all subsequent tax years, trustees of unauthorised unit trusts will be required to make payments on account of the tax due to HMRC on the 31 January and 31 July of one year, with a balancing payment or claim made on 31 January the following year. This legislation has been brought in to reverse unintentional changes made in the Income Taxes Act 2007 allowing tax to be paid on the 31 January following a tax year only.

Funds of Alternative Investment Funds

The changes will enable certain funds to elect for a tax treatment as "Tax FAIFs", which will move the taxation of offshore income gains of the fund from the fund to its investors. This means that the Tax FAIF will not be chargeable on any offshore income or gain (unlike at present) but its investors will be chargeable to income tax, not CGT, on gains derived from a disposal of units in the fund.

Property Authorised Investment Funds

From 6 April 2008, If an Authorised Investment Fund (AIF) invests mainly in property and certain related securities it may qualify to elect for the Property AIF regime to have effect. Property AIF rental profit and certain other property related income will be exempt from taxation in the fund but will normally have to be fully distributed to its investors where it will be taxed as income in their hands. Such a distribution will need to be made under deduction of tax.

Restrictions on Trade Losses for Individuals

From 12 March 2008, the limitation on sideways loss relief that currently applies to certain partnerships is extended to individuals. An individual who carries on a trade in a non-active capacity (spends less than on average 10 hours a week personally engaged in commercial activities of the trade) will be limited to £25,000 of sideways loss relief.

These rules do not apply to individuals whose losses derive from qualifying film expenditure.
Blackstone Franks' Reaction:
Qualifying film expenditure refers to the film reliefs under ITTOIA 2005, ss 137 to 140. This is the old system of film leasing which applied to films where principal photography commenced before 1 January 2007 or the film was acquired before 1 October 2007. It will not cover the new generation of "sole trader film schemes" that is currently being offered as tax shelter investments. We are currently sceptical whether such schemes were effective. This change seems to ensure that they become unattractive.
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Double Taxation Relief: Income Tax

From 6 April 2008, the legislation will be clarified to ensure that the credit in respect of foreign tax paid on earnings from a trade or profession carried on outside the UK cannot exceed the tax that would have been suffered on this income had it been derived from the UK.

Double Taxation Treaty Abuse

Legislation will be introduced to block a wholly artificial scheme which seeks to avoid UK tax by diverting income of a UK resident to a foreign partnership comprised of overseas trusts of which the UK resident is a beneficiary. It is claimed that the business profits article of the UK's double tax treaties prevents the income being taxed at all. The change will ensure that the business profits article of a double tax treaty will not exempt a UK resident from UK tax on his profits from a foreign partnership, and also that a tax treaty cannot be read as preventing income of a UK resident being chargeable to UK tax
Blackstone Franks' Reaction:
The draft legislation seems far wider than is needed to counter this abuse. All tax structures involving offshore vehicles of UK residents that rely on double tax agreements may need to be reviewed.
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Manufactured Payments

The Finance Act will stop individuals avoiding income tax by making manufactured payments; payments representative of interest or dividends payable on securities, such as gilts or shares, arising in the course of a sale and repurchase or stocklending arrangements. This change applies from 31January 2008

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CAPITAL GAINS TAX

Annual Exemption

The capital gains tax annual exemption for 2008/09 is increased by £400 to £9,600 for individuals, trustees of settlements for the disabled and personal representatives of the estate of a deceased person. For trustees of other settlements it is increased by £200 to £4,800.

Rate

A flat rate of 18% will apply for 2008/09 onwards except where the gain qualifies for Entrepreneurs' Relief (see below). Taper relief and indexation relief will no longer be available on disposals after 5 April 2008. None of these changes affect capital gains realised by a company (including gains of offshore companies that are attributed to a UK resident shareholder). As a simplification measure, from 6 April 2008 it will cease to be possible to calculate the gain on a asset held at 1 April 1982 by reference to it's original cost.

Blackstone Franks' Reaction:
There are obviously winners and losers. Where an asset has been held for a long time before 5 April 1998 the loss of indexation relief can significantly increase the taxable gain. Indexation relief on an asset held at 1 April 1982 (when the relief was introduced) is equal to 1.047 times the cost (or 1 April 1982 value) of the asset. Consideration ought to be given to disposing of such assets before 6 April 2008 as the effective tax rate on a sale this year might well be below 18%. Indexation relief can be preserved by making a disposal between husband and wife before 6 April 2008. It is obviously worth considering making such disposals.
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Entrepreneurs' Relief

This will, subject to detailed rules, be available in respect of gains made by individuals on the disposal of:

o all or part of a trading business that the individual carries on alone or in partnership;
o assets of the individual's or partnership's trading business following the cessation of the business;
o shares in (and securities of) the individual's "personal" trading company (or holding company of a trading group);
o assets owned by the individual and used by his / her "personal" trading company (or group) or trading partnership.
o for a company to qualify as the shareholder's personal company he must own at least 5% of the ordinary share capital and 5% of the voting rights and must also be a director or employee of the company

It will also be possible to claim relief where, on or after 6 April 2008:

o shares or securities are exchanged for other shares or securities (including qualifying corporate bonds (QCBs)); and
o gains on disposal of the original shares or securities would meet the qualifying conditions for relief; but the gains are treated as not arising at the time of the exchange under the normal CGT rules for such exchanges.

Transitional rules will also allow Entrepreneurs' Relief to be claimed where gains that were deferred on or before 5 April 2008 under the rules for exchanges of shares, etc., for QCBs, or on investment under the EIS or in a Venture Capital Trust (VCT) become chargeable on or after 6 April 2008. The relief will be claimable if the disposal that gave rise to the deferred gain would have qualified for the Entrepreneurs' Relief if it had been in force at the time.

There is a "lifetime" limit (starting from 6 April 2008) of £1 million. The asset has to be held for a minimum of a year to qualify. The relief is given by reducing the gain (or net gain where some relevant disposals show gains and others are at a loss) by four- ninths. The balance of five-ninths is taxed at the flat rate of 18% so that the effective rate is 10%, the same rate that currently applies to disposals eligible for Business Asset Taper Relief.
Blackstone Franks' Reaction:
A qualifying period of only one year makes this an attractive relief.

Reducing the taxable amount increases the value of brought forward losses, as a loss set against four-ninths of the gain effectively gives 18% tax relief on the reduced gain, whereas if the whole gain were taxed at 10% relief for the loss would be at 10%.

There is a problem where in the past, shares were sold in exchange for non-QCBs. In such circumstances the gain was not deferred; the exchange was treated as a no gain/no loss transaction. Accordingly on redemption after 5 April 2008 Entrepreneurs' Relief can apply to the gain on the bonds only if the company qualifies as the holder's personal company at that date, which it rarely will do.
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IHT Values

Currently where a value is ascertained for IHT purposes it will also apply for CGT (TCGA 1992, s 274). HMRC take the view that if they do not need to consider a value because it does not affect the tax payable, it has not been ascertained. Where no IHT is payable on the death of a spouse but IHT is payable on the death of the surviving spouse, so at that stage HMRC have to revisit the earlier death to ascertain the unutilised amount of the nil rate band and to do so have to ascertain the then value of the assets, section 274 will be disapplied so that there will be no need to revisit the CGT valuation.

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VAT

Registration Threshold

The VAT registration threshold is again increased by £3,000 to £67,000 from 1 April 2008. The deregistration threshold similarly increase by £3,000 to £65,000 and the registration and deregistration thresholds for acquisitions from other EU countries are increased by £3,000 to £67,000.

Correction of Errors

For return periods commencing from 1 July 2008 errors of up to the greater of £10,000 or 1% of net VAT turnover (the box 6 figure) for the return (subject to an upper limit of £50,000) can be corrected in the next return after the error is discovered. It is not clear if the turnover figure is that for the return in which the error arose or that in which it is corrected.

Blackstone Franks' Reaction:
Hurrah! This increase from £2,000 is much overdue. HMRC have not gone as far as we would have liked but for most small companies it is likely to mean that virtually all errors can in future be corrected on the return. HMRC say that 70% of voluntary disclosures are under £10,000. Correcting through the return will normally avoid penalties and interest.
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Fuel Scale Charge

The scale charge is of course now based on carbon emissions the lowest quarterly rate (140 or below) being £27.11 (VAT on £182) and the highest (240 or over) £63.45 (VAT on £426) per quarter. The new scale starts at 120 or less and the highest is 285 or more. The quarterly figures at the top and bottom of the scale are:

120 or less £20.55 (on £138) i.e. a reduction of £6.56
140 or less £32.91 (on £221) i.e. an increase of £5.80
235 or less £71.94 (on £483) i.e. an increase of £10.28
240 or less £71.94 (on £483) i.e. an increase of £8.49
Blackstone Franks' Reaction:
As the charges are supposed to represent increases in fuel prices some of these variations look odd.
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Transitional Period for Late Claims

The House of Lords has recently held that the legislation imposing the three year cap is ineffective for periods prior to 1 May 1997. Under EU law the UK has to provide for a transitional period during which they tell taxpayers that they will have the right to make a claim after the end of that period. This was not done. Accordingly the cap is ineffective for:

a) input tax claims for periods ending between 1 April 1973 and 1 May 1997, and
b) output tax claims for periods ending between 1 April 1973 and 4 December 1996.

The Finance Act will introduce a transitional period for such claims, which will end on 31 March 2009.
Blackstone Franks' Reaction:
Anyone whose claims for one of the above periods was capped, or who did not make a claim because they knew that it would be disallowed, can now make a refund claim in relation to the above periods. There are however two problems. You will need to have kept the appropriate records and you will need to show that you will not be unjustly enriched by being repaid, ie that you will pass on the repayment to the customers to whom you charged VAT in error or the VAT inclusive price you charged would have been the same irrespective of whether or not VAT was due. We somehow doubt that most people will be able to clear these two hurdles in relation to transactions that took place over 10 years ago.

Option to Tax

A number of changes will be made to the option to tax property. The details have not been announced. They will cover:

a) Opted properties within a VAT group (there is a problem where the company leaves the group).
b) Opted buildings and bare land acquired for residential purposes
c) Global elections for a number of properties.
d) A "cooling off" period.
e) The option will lapse six years after the taxpayer disposes of the property (currently there is an issue where the property is reacquired some years later).
f) The ability in certain circumstances to exclude a new building from a previous option.
g) Late applications for permission to opt.

Blackstone Franks' Reaction:
These are matters that are unlikely to affect options to tax by many people. They are however welcome administration relaxation for a lot of others.
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Smoking Cessation Products

The 5% rate that was due to end on 1 July 2008 on over the counter sales of pharmaceutical smoking cessation products will be extended indefinitely.

Fund Management Exemption

The current exemption for fund management will be extended from 10 October 2008 to cover UK listed investment entities (including investment trust companies and VCTs) and certain overseas funds.

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STAMP DUTY LAND TAX AND STAMP DUTY

Stamp Duty: Sukuk

Alternative finance (i.e. Shariah Compliant) investment bonds which are similar to a debt security will be reclassified as loan capital for stamp duty purposes for transfers after the date of Royal Assent (probably next July). This will exempt transfer of such bonds from stamp duty.

Stamp Duty: Loan Capital Exemption

From Royal Assent the loan capital definition will also be amended to extend exemption to transfers of loan capital that is subject to a capital market arrangement on limited recourse terms so that in the event of a default the right to interest might be determined to some extent by the results of the business or the value of its assets.

Stamp Duty £5 Fixed Charge

Where the 0.5% stamp duty on the sale of shares amounts to under £5, duty is charged at a minimum figure of £5. There will be an exemption from stamp duty for instruments executed after 12 March where the consideration is under £1,000, which will eliminate this charge. However, this exemption will not apply to SDRT (which is charged instead of stamp duty where no instrument is brought into being). The exemption has to be certified on the stock transfer form to confirm that the sale is not part of a larger transaction. Accordingly old forms should not be used as they will not contain the appropriate certificate. The fixed £5 charge for instruments transferring shares other than on sale (and other than under an exemption) is also abolished from the same date.

SDLT New Zero-Carbon Flats

The current relief for new zero-carbon homes will be extended to new zero-carbon flats (with retrospective effective to 1 October 2007). The relief exempts flats costing under £500,000 and exempts the first £500,000 on larger sales. It is due to end on 30 September 2012.
Blackstone Franks' Reaction:
There is always a sting in the tail. A house or flat will be accepted as zero-carbon only if it is so certified by the government, and the government is taking power to charge a fee for certification! As we said last year, the other main snag is that there are unlikely to be many such homes built by 2012.
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SDLT Notification Thresholds

From 12 March 2008 it is no longer necessary to notify HMRC of land transactions where the consideration is less than £40,000 (or in the case of a lease the premium is less than £40,000 and the rent is less than £1,000). For commercial property taxpayers may have to complete a Valuations Office Agency form instead though.

SDLT Other Administrative Changes

From later this year agents will be able to sign the certificate that no SDLT is due. From later this year the "£600 rule" will be abolished for residential property, but will be retained, albeit increased to a "£1000 rule", for commercial property.

A number of operational changes will be implemented to reduce the cost of correcting incorrect SDLT returns - which seems to mean only that HMRC will try to deal with queries by telephone rather than in writing.

SDLT on Property Investment Partnerships

Last year's changes are being amended (retrospectively) to limit their effect to changes in partners and exclude changes in profit sharing ratios between existing partners.

SDLT Group Relief Avoidance

Apparently it was possible to avoid the claw back of the SDLT group relief on a company leaving the group owning a property acquired intra-group by having the vendor leave the group first and the purchaser subsequently doing so. This is no longer possible after 12 March.

SDLT Alternative Finance Arrangements

Create an exemption and someone will find a way to abuse it! Apparently financial institutions have been assisting parties to avoid SDLT by setting up a subsidiary, which claims that a transaction is intended for the equivalent of mortgaging or re-mortgaging the property SDLT free, and selling the shares in the subsidiary once it has acquired the property.
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OTHER TAXES

Inheritance Tax

Threshold

As previously announced the nil rate band up to 1010/11 is as follows:
From 6 April 2008 £312,000
  6 April 2009 £325,000
  6 April 2010 £350,000

Mr Darling has not announced the limit for 2011/12.

Also, as previously announced any unused part of the exemption on the first death is available to enhance that of the surviving spouse on her death.
Blackstone Franks' Reaction:
This does not mean that IHT planning on the first death is no longer necessary. The record-keeping requirement can be burdensome, the increased nil rate band does not apply to lifetime gifts by the surviving spouse, BPR on the first death may not be available on the second, and the easiest IHT planning is to make lifetime gifts to individuals in excess of the nil rate band as a PET and to try to live for seven more years.
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Transitional Serial Interests

The 2006 legislation on transitional serial interests may not work properly where a pre 22 March 2006 interest in possession in a settlement is replaced before 5 April 2008 by a new (generally longer) interest in possession for the same individual. Accordingly the legislation will be amended and the transitional period to rearrange pre 22 March 2006 IIP trusts will be extended to 5 October 2008.

Pension Savings

There will be a number of changes from 6 April 2008 to ensure that "tax-relieved pension savings diverted into inheritance using scheme pensions and lifetime annuities" are subject to unauthorised payment charges and, where appropriate, IHT.

IHT protection for UK tax-relieved pension savings in overseas pension schemes that was accidentally abolished in 2006 will be restored retroactively from 6 April 2006.

Landfill Tax

Rate of Tax

The standard rate of landfill tax, which is due to increase by £8 to £32 per tonne from 1 April 2008, will increase again to £40 per tonne from 1 April 2009.

Landfill Communities Fund

The maximum credit that landfill site operators can claim against their landfill tax liability for contributions to approved environment bodies will be reduced from 6.6% to 6% from 1 April 2008. The rules that such environmental bodies have to comply with will be modified yet again.

Exemption for Clearing Contaminated Land

The current exemption for waste from cleaning up UK contaminated land is to be phased out. No applications for new exemption certificates will be accepted after 1 December 2008 and current certificates will cease to be valid on 31 March 2012 (so waste deposited after that date will attract landfill tax).

Aggregates Levy

The rate of aggregate levy will be increased from £1.95 per tonne to £2.00 per tonne from 1 April 2009.

Climate Change Levy

Rate

The rates will be increased, broadly in line with inflation, from 1 April 2009.

Electricity from Coal Mine Methane

Electricity generated from coal mine methane will cease to be regarded as "renewable" from 1 November 2008 so will no longer qualify for CCL exemption from that date.

CCL Accounting Documents (CCLAD)

The requirement for an invoice issued by an electricity or gas supplier to state that it is a CCLAD will be abolished from Royal Assent. Apparently this "administrative burden" is being removed only on the basis that such suppliers have told HMRC that they will use the space on the invoice currently occupied by that wording "to provide better information to customers".

Fuel for Yachts and Private Planes

As announced last year, the EU will no longer permit a reduced or exempt rate of fuel duty to be used for private boating or pleasure flying. From 1 November 2008 the user of aviation turbine fuel will be the person liable to pay the duty of 52.35 pence per litre. The supplier will be required to draw the existence of this obligation to the purchaser's attention and the purchaser will have to declare to the supplier that he intends to use the fuel for pleasure flying.

If the plane uses aviation gasoline the rate will be only 31.03 pence per litre and this will be payable by the supplier in the same way as applies to commercial use. Red diesel can continue to be used for pleasure boating but the supplier will have to pay over to HMRC an amount equivalent to the rebate allowed on the fuel. HMRC are still considering whether to make an allowance for fuel used for heating and lighting on the boat.

Waste Oil Recovery

From 1 November 2008 the EU requires waste oil recoverers to be treated as oil producers. They will have to pay duty of 9.66p per litre on heavy oil (which encompasses waste oil) if such oil is supplied as fuel.
Blackstone Franks' Reaction:
So now recycling is a wicked thing!
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Alcohol Duties

There are swingeing increases in alcohol duty from 17 March 2008

55p on a 70cl bottle of spirits
4p on a pint of beer
3p on a litre of still cider (no we don't know why cider seems to be regarded as a continental drink to be measured metrically as opposed to good old English Imperially-measured beer)
14p on a 75cl bottle of sparkling cider
14p on a 75cl bottle of wine
18p on a bottle of champagne (or other sparkling wine)

The Chancellor also said that alcohol duties will increase by 2% above the rate of inflation in each of the next four years.
Blackstone Franks' Reaction:
You have the weekend to stock up! Pubs are already closing at the rate of 60 odd a month. On top of the smoking ban, these hefty increases could well spell the death-knell of your friendly local. It seems unlikely to spell the death-knell of binge-drinking in big city centre pubs though.
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Tobacco Products Duty

The rates changed from last night in line with inflation (11p on 20 cigarettes and 4p on 5 cigars).

Amusement Machine Licence Duty

The licence duty increases for all categories of gaming machines for license applications received after 4pm on 14 March 2008.

Gaming Duty

The duty bands will be increased from 1 April 2008 in line with inflation.

North Sea Fiscal Regime

There are various changes to the legislation on North Sea oil exploration. As we do not believe these affect any of our clients we have not tried to understand them.

Aviation Duty

As previously announced a new Aviation Duty is to replace Air Passenger Duty from November 2009. HMRC have not yet worked out the details as they have no authorisation to spend money doing so. The Finance Act will accordingly contain legislation to enable HMRC to incur expenditure to develop the form of this new tax.

Hydrocarbon Oil Duties

The duty on both petrol and diesel will increase by 2p a litre from 1 October 2008, a further 1.84p from 1 April 2009 and by 0.5p above inflation from 1 April 2010. The rates of duty are to be simplified from 1 April 2008. There will be one (instead of three) rates for heavy oil (diesel), two (instead of four) for light oil (unleaded petrol and leaded petrol) and a new category of aviation gasoline (AVGAS).

The current duty differential for bio-fuels for road use will cease from 2010 but a new reduced rate of duty will be introduced from 1 April 2008 (and increase thereafter in line with petrol and diesel) for bio-diesel and bio-blend used other than as fuel for road vehicles.

Insurance Premium Tax

From the date of Royal Assent it will no longer be compulsory for a overseas insurer to appoint a UK tax representative. It has often been difficult for an insurer to find someone willing to act as a tax representative as such a person is jointly and severally liable for the tax. This joint and several liability has also been scrapped. So will be HMRC's right to recover the tax from the insured person, except where the insurer is resident in a country with which the UK does not have a treaty providing for the mutual enforcement of tax debts.

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MISCELLANEOUS

Penalties for failure to notify and other failures

The Finance Act will contain the next tranche of legislation in Relation to HMRC's Review of Powers, Deterrents and Safeguards. Last year we had the new penalty regime for the main tax returns. This is being extended probably from 1 April 2009, to returns in relation to all other taxes operated by HMRC (other, apparently than Customs' duties which are an EU tax).

There will also be new tax-related penalties for failure to notify liability but the fixed penalties that apply where no tax is lost will be scrapped. The new penalties, like those in relation to returns, will be related to behaviour, namely

non-deliberate failure 0 - 30% (0 - 15% for an unprompted disclosure)
deliberate failure 20 - 70% (20 - 35% for an unprompted disclosure)
deliberate failure with concealment 30 - 100% (30 - 50% for an unprompted disclosure).

Penalties will also be chargeable on third parties who deliberately provide false information to the taxpayer or deliberately withhold information so that the taxpayer makes an incorrect return.

Compliance Checks

There will also be new rules on record-keeping requirements and information powers and HMRC will be given a power to visit business premises (and the business part of a private home which is used partly for business).
Blackstone Franks' Reaction:
A number of these changes are very controversial. When Self Assessment was introduced a policy decision was taken to balance HMRC powers and taxpayer rights. Mr Brown and Mr Darling seem to have scrapped that objective. It remains to be seen how the vastly increased powers that are proposed for HMRC will affect the "customer-friendly" and "agent-friendly" approach that HMRC now claim to be adopting.
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Payments, Repayments and Debt

The Finance Act will contain measures to allow HMRC

a) to accept payment by credit card from Autumn 2008,
b) to set tax repayments against tax debts from the date of Royal Assent, and
c) to take control of a wider range of goods than they can do under their current power of distraint
Blackstone Franks' Reaction:
Some of these changes are also controversial. If you want to pay by credit card you will also have to pay a credit card charge to HMRC. HMRC promises not to suggest to you that you should pay by credit card and build up credit card debt - although if they tell you that you could pay by credit card if you want, and if you don't want to do so that's OK by them, they will simply seize your furniture or your car, we suspect that such a promise will become illusory.

The proposals for set off of repayments against debts, whilst in itself reasonable, might well extend to debts of related persons, which most people would think is not. It also of course creates the risk that a "gung-ho" tax officer can easily put a person out of business by snatching a tax refund that has been promised to the bank.
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Changes to Customs Powers

From the date of Royal Assent HMRC Officers will be given power to open and inspect containers (rather than merely being able to require the proprietor of the goods to do so).

Tribunal Reform

The General and Special Commissioners and the VAT and Duties Tribunals are being replaced from 1 April 2009 by a new appeal system to a First-Tier Tribunal and then to an Upper Tribunal. As the interface between HMRC and the new tribunals is still under discussion, HMRC will be given power to amend the administrative rules on appeals by statutory instrument. It is probable that this will include the introduction of a statutory but voluntary internal appeals procedure.
Blackstone Franks' Reaction:
We welcome an internal review procedure provided that the reviewer can seek further information from the taxpayer and can compromise the case if that seems a sensible thing to do. There is a reasonable chance that that is what we will end up with.
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Excise Reviews

The current review of powers will be extended to cover more types of decision by HMRC.

Natural Disasters

No, not Gordon Brown and Alistair Darling! The severe floods last summer and similar catastrophes. HMRC's will be given power to waive interest and surcharges on tax paid late as a result of a major disaster. The rules will be similar to those introduced in 2001 to cope with the foot-and-mouth disease outbreak.

Extra-Statutory Concessions

In May 2005 (yes, three years ago, that's not a misprint) the House of Lords cast doubt on HMRC's power to make some of their extra-statutory concessions. The Finance Bill will include power for HMRC to legislate by statutory instrument those concessions that they believe fall outside their "care and management" powers.

Tax Avoidance Disclosure Régime

The rules will be amended in the Finance Act to make them more effective.

Single-use Carrier Bags

Mr Darling has threatened that the government will impose a tax charge on plastic bags "if retailers do not take voluntary action".

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