BLACKSTONE FRANKS LLP

THE BUDGET 2009
CONTENTS

The New Tax Rates at a Glance

Income Tax
Income Tax Rates for 2009/10
The Increase in Income Tax Rates from 2010/11
Trusts
Unauthorised Pension Scheme Payments
Personal Allowances for Non-Resident Commonwealth Citizens
The Remittance Basis: Minor Amendments
Venture Capital Schemes
Payments by the Financial Services Compensation Scheme
Charities: Substantial Donors Regulations
Child Trust Funds
Anti-Avoidance Measures
Interest relief
Authorised Investment Funds (AIFs)
Individual Savings Accounts
Avoidance Using Life Insurance Policies

Employee Taxation
Changes to Company Car Tax From 2011/12
Living Accommodation: Payments of Lease Premiums
Pensions Tax Relief
Taxation of Payments from the Financial Assistance Scheme
Save As You Earn (SAYE) process Simplification
Anti-Avoidance: Employee Liabilities

Corporation Tax
Rates
Connected Companies: Loan Relationships
Agreements to Forgo Tax Reliefs
North Sea Fiscal Regime
Life Insurance Companies
Lloyd’s Corporates: UK Dividends Exemption
Group Relief: Preference Shares
Groups: Reallocation Of Chargeable Gains
Foreign Denominated Losses
Transfers of Business Between Mutual Societies
Investment Trust Companies (ITC): Investment In Interest Bearing Assets
Double Taxation Relief On Dividends
Corporate Intangible Fixed Asset Regime
Anti-Avoidance: Financial Arrangements
Sale Of Lessor Companies
Anti-Avoidance: Foreign Exchange Losses
Disguised Interest
Manufactured Interest
Hedging Proceeds From Future Share Issues
Double Taxation Relief Avoidance: Banks Using Manufactured Overseas Dividends
Double Taxation Relief Avoidance: Credit Abuse
Double Taxation Relief Avoidance: Repayment of Foreign Tax
Personal Accountability of Senior Accounting Officers of Large Companies
Real Estate Investment Trusts
Taxation of Foreign Profits

Business Tax
Capital Allowances
Temporary First Year Allowances
Enhanced Capital Allowances For Energy Saving And Water Efficient Technologies
Modernising Tax Relief for Business Expenditure on Cars
Losses: Extension Of Trading Loss Carry Back
Anti-Avoidance: Plant And Machinery Leasing
Transfer Of Income Streams
Authorised Investment Funds

Capital Gains Tax
Annual Exemption
Offshore Funds
Alternative Finance Investment Bonds
Stock Lending Arrangements

VAT
Registration Threshold
Standard Rate
Fuel Scale Charges
Option to Tax Land and Buildings
Reduced Rate for Children’s Car Seat Bases
Cross-border VAT Changes 2010
Place of Supply of Services Rules
Time of Supply of Services Rules
EC Sales Lists
VAT Refund Procedure for Overseas Supplies

Stamp Duty Land Tax and Stamp Duty
SDLT Threshold
Alternative Finance Investment Bonds
Shared Ownership
Leasehold Enfranchisement
Stamp Duty
Stock Lending and Repurchase Arrangements

Other Taxes
Inheritance Tax Threshold
Agricultural property and woodlands relief
Landfill Tax
Standard Rate
Taxable Disposal
Climate Change Levy
Plastics sector
Recovery of relief
Low value solid fuel
Gaming Duties
Amusement Machine Licence Duty
Alcohol Duties
Tobacco Product Duty
Hydrocarbon Oils

Miscellaneous
Naming and Shaming Tax Evaders
The Powers of Review
Future Monitoring
HMRC Charter
Customs Powers
Vehicle Scrappage Scheme
Business Rates
Business Support Service
Offshore Disclosure Facility

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
Income Tax	2009/10		2008/09
Basic Rate	20%	*	20%	*
- on income up to	£37,400		£34,800
Higher rates on excess	40%		40%
*There will be a new starting rate for savings income only, with a limit of £2,440 (2008/09 - £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.
	£		£
Personal allowance (age under 65)	6,475		6,035
Age allowance
- if 65 or over by end of tax year	9,490		9,030
- additional if married and either spouse
over 65 at 6 April 2000	N/A	***	6,535	**
- if 75 or over by end of tax year	6,965	**	6,625	**
- additional if married and either spouse
over 75 at 6 April 2000	N/A	***	6,365	**
(The excess of age relief over the personal
allowance is reduced by half of the excess
of income over £22,900 in 2009/10 (£ 21,800
in 2008/09))
Blind person’s relief	1,890		1,800
Maximum Enterprise Investment Relief	500,000		500,000
(restricted to 20%)
** Relief is restricted to 10%
*** Anyone over 65 at 6 April 2000 will be over 75 by 5
April 2010 and will be eligible for the higher allowance
Corporation Tax Rates	2009/10		2008/09
Small company rate (£0 - £300,000)	21%		21%
Main rate (over £1,500,000)	28%		28%
Effective marginal rate (£300,000 - £1,500,000)	29.75%		29.75%
Fraction for marginal rate relief	7/400		7/400
	£		£
Capital Gains Tax
Annual Exemption for individuals	10,100		9,600
Inheritance Tax
Nil Rate Band	325,000		312,000
Value Added Tax
VAT Registration Threshold	68,000		67,000

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INCOME TAX

Income Tax Rates
The income tax bands for 2009/10 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 £37,400 20%
Excess over £37,400 40%

The 10% starting rate, which applies to savings income only, rises in line with inflation from £2,320 to £2,440. If a person’s taxable non-savings income exceeds that amount, the rate will not apply to their savings income.

A special rate of 32.5% applies to dividends including in total income where this exceeds £37,400.

As announced last year, UK resident individuals, and UK and other EEA nationals, who hold 10% or more of the shares in non-UK companies and receive dividends from such companies will benefit from a 10% non-repayable tax credit in the same way as they currently do for dividends from UK companies. However this will apply only if the source country has a double tax agreement with the UK which includes a non-discrimination article – as all of our full DTA’s do. The same rule will apply to holders of units in offshore funds which are largely invested in equities. There will be anti-avoidance measures to ensure that these new rules are not subject to abuse. For some reason known best to Mr Darling they apply to dividends received after 22 April 2009, not 5 April 2009. If an offshore fund is substantially invested in interest bearing assets, individuals receiving distributions will be treated for tax purposes as having received interest and not a dividend or other type of distribution.

Blackstone Franks' Reaction: In some cases it may be better to claim double tax relief under the DTA then to claim this tax credit.

The Increase in Income Tax Rates from 2010/11

The major tax change is the increase to 50% in the top rate of tax for the ultra-rich (which in Mr Darling’s mind is those with taxable income in excess of £150,000) and the withdrawal of personal allowances for the not quite so rich for 2010/11 onwards.

Blackstone Franks' Reaction: If you are affected by this change you are among the top 350,000 income tax payers. The change will raise approximately £1.8 billion p.a. towards the anticipated National Debt of £1.4 trillion (79% of GDP). This of course assumes no behavioural changes, i.e. it assumes that multi-national companies with tax-equalisation plans will continue to base their executives in London at a substantially increased cost, rather than move their European head offices to Brussels. It also assumes that British businessmen are so anxious to live in one of the most highly taxed countries in the developed world – it moves the UK from 19 th to 7 th in the league of highest marginal tax rates - that the “brain drain” that was engendered by Dennis Healey’s increase in the top rate of tax to 83% 35 years ago will not be repeated. Or perhaps it doesn’t; perhaps Mr Darling’s theory is that we don’t want enterprise and entrepreneurship here so why worry about keeping successful businesses in the UK. Interestingly there do not appear to be any anti forestalling rules. If you are likely to be caught by this tax increase you should consider whether you can bring forward 2010/11 income into 2009/10. For example can you persuade your employer to pay your bonus early? If you have your own company, perhaps you should take an exceptional dividend in 2009/10 if you are likely to need it in a later year. Even if there is a general election next May, as seems likely, and a change in government, the financial position of the country will be such that a Conservative government would be unlikely to reverse this change within the following five years. It is also clearly worth considering transferring income to one’s spouse where one spouse has income over £150,000 but the other does not. If the husband has high earnings from an employment it may be sensible to transfer investments to his wife so that the income therefrom attracts her tax rate. Those with incomes over £150,000 will also have their tax relief for pension contributions restricted as is explained later.

The tax rate on dividends for those with incomes in excess of £150,000 will be 42.5%.

Blackstone Franks' Reaction: This figure of 42.5% is arrived at as follows £100 dividend grossed up at 10% 111.11 Tax at 42.5% 47.22 Net 63.89 The effective tax rate on the actual Dividend of 100 is Tax as above 47.22 Less tax credit 11.11 36.11

The withdrawal of the basic personal allowance is effected by withdrawing £1 of allowance for every £2 of income in excess of £100,000. With the standard personal allowance at £6,475 that means that a person with income in excess of £112,950 will get no basic personal allowance, while those with income between £100,000 and £112,950 will get a reduced allowance.

Blackstone Franks' Reaction: This will apparently raise an extra £100 million pa, which is hardly worth having in fiscal terms. It accordingly appears to be intended to mark the demise of Tony Blair’s New Labour and a return to the Old Labour socially derisive “tax the rich till the pips squeak” philosophy, rather than to raise revenue. It will affect around 1.1 million people (including the 350,000 top earners).

Trusts

From 2010/11 the trust rate of tax will also increase to 50% with the dividend trust rate becoming 42.5%.

Blackstone Franks' Reaction: This makes trust very unattractive from an income tax point of view where the beneficiaries are basic rate or 40% taxpayers. Although the excess of the 50% rate over the beneficiary’s 20% rate is refunded when income is distributed, the excess tax has to be funded in the interim. Furthermore where a trust receives dividends the rules work imperfectly, so that the 75% difference between the trust rate and the dividend trust rate becomes an extra charge. Accordingly small trusts need to be reviewed and either wound up or the trust converted to an interest in possession trust so that the income becomes taxable directly on the beneficiary instead of the trustees.

Unauthorised Pension Scheme Payments
The 40% penalty that applies to unauthorised payments from registered pension schemes will similarly increase to 50% from 2010/11.

Personal Allowances for Non-resident Commonwealth Citizens
For 2010/11 onwards non-resident individuals will no longer qualify for reliefs and allowances (including the basic and age-related personal allowances, married couples’ allowance, blind person’s allowance and relief for life assurance) solely by virtue of being a Commonwealth citizen, although they may continue to qualify under the other conditions or through Double Tax Agreement (DTA) provisions if applicable. This will mainly affect residents of Commonwealth countries which do not have a DTA with the UK, including the Bahamas, St Lucia, St Vincent & the Grenadines, Tonga and Samoa. Giving the allowances apparently contravenes the Human Rights Act! Curiously giving the allowances to EEA nationals does not seem to do so.

The Remittance Basis: Minor Amendments
Minor changes are being introduced to these rules. These are apparently designed to make the rules simpler to operate in practice although some appear to tighten the rules

Blackstone Franks' Reaction: This is a major and very welcome change. The current rules are unworkable. The new ones are still largely unworkable but this is a major relaxation. It would of course have been even more welcome had the government made this change last year when everyone urged them to do so.

1. From 22 April 2009 the definition of a relevant person will be “clarified” by making clear that the ICTA 1988 definitions of “participator” and “51% subsidiary” apply.
   
2. From 22 April 2009 if an item which is brought to, or used in, the UK forms part of a set (the rest of which is not brought into the UK) the amount of the remittance will be such part of the value of the whole set as is just and reasonable.
   

Blackstone Franks' Reaction: The idea is that if a person has a set of items for which the value of the set is greater than the value of an individual item and he brings one item from the set into the UK, perhaps to show a potential buyer of the set, the amount taxed will be a proportionate part of the value of the set, not the lower value of the item itself. It is hard to see any logic in this other, of course, than to collect as much money as possible from those nasty foreigners.

5. Legislative effect will be given to Statement of Practice 1/09 which relates to remittances of earnings by persons who are not ordinarily resident in the UK.
   
6. The transitional rules in relation to individuals who are taxed under the specific anti-avoidance rules that apply to settlements will be extended to ensure that they operate as intended, from 6 April 2008. It is not yet clear what this means.
7. The interaction between the remittance basis regime and the tax rules in relation to settlor-interested trusts will be clarified with effect from 22 April 2009 (the effective date suggests that “clarification” is likely to mean “extension”).
   
8. t will be made clear (with effect from 6 April 2008) that the £30,000 fee for the privilege of using the remittance basis is “tax” for gift aid purposes, so that it can be used to frank gift aid payments.

Blackstone Franks' Reaction: We hope that there will be more changes next year. The remittance basis rules are a nightmare and will largely remain so. They were rushed through Parliament, with major changes being introduced at the very last minute, and deserve to be torn up and a fresh start made on devising workable rules.

Venture Capital Schemes
Improvements are being made with effect from 22 April 2009 to the Enterprise Investment Scheme (EIS), the Corporate Venturing Scheme (CVS) and the Venture Capital Trust (VCT) Scheme.

For EIS, the measures:

Blackstone Franks' Reaction: HMRC have just spent/wasted a large amount of taxpayers money litigating this point. “We are sure that taxpayers want us to prove we at HMRC are always right, but we are magnanimous in victory and will now change the law so that everyone other than the poor taxpayer who dared to challenge us will be treated fairly”

3. The full amount of an EIS investment can be carried back to the previous tax year (currently only £50,000 can be carried back and even that only from investments in the second half of the tax year). Any carry back must be within the overall £500,000 limit for the tax year though.
4. The share exchange rule will be amended to correct an anomaly that can impose a tax charge on a share exchange. This ensures that where EIS deferral relief applies the CGT charge does no more than claw back that relief.

For CVS and VCT head (a) above (but not the others) applies.

Payments by the Financial Services Compensation Scheme
It will be made clear that individuals who have tax-relieved pension savings with an insurance company where the insurer qualifies for assistance from the Financial Services Compensation Scheme (FSCS) will not be disadvantaged because of FSCS involvement. The proposed legislation will also extend other regulation-making powers in relation to registered pension schemes to FSCS payments allowing such regulations to apply retrospectively where they do not increase the individual’s liability.

A second measure applies to individuals who have received or will receive, compensation from the FSCS because of the default of a financial institution, such as a bank. Where the compensation includes a payment in respect of accrued interest it will be made clear that the interest element is taxable.

Charities: Substantial Donors Regulations
The substantial donor rules that apply where charities carry out certain transactions with their largest donors (and tax relief is available in respect of their donation(s)) will be relaxed by increasing the threshold of relievable gifts that a person can make (over a period of 6 years) before becoming a substantial donor to a charity from £100,000 to £150,000 from 23 April 2009 . The annual threshold of £25,000 will remain the same.

Anti-Avoidance Measures
Interest relief
Interest paid by individuals on loans used to invest in (close companies or partnerships) qualifies for income tax relief against the individuals’ other income. Schemes have been notified to HMRC that exploit these provisions by means of arrangements that eliminate any investment risk. These guarantee that the investor will be in a profitable position by virtue of the interest being eligible for relief. As announced on 19 March 2009 relief for interest will be denied from that date if it is paid as part of an arrangement that is certain (ignoring insignificant risk) to allow the investor to exit the arrangement with more money than was originally invested and the investor’s main purpose in being a party to the arrangements is to secure that result. Normal commercial transactions are not affected.

Authorised Investment Funds (AIFs)
UK AIFs that meet certain conditions will be able to elect to be treated as a tax elected fund (TEF). TEFs will be required to make two types of distribution of the income they receive - a dividend and a non dividend (interest) distribution. UK dividend income will remain non taxable in the fund and will be distributed as a dividend. For all other income that is distributed as a non-dividend (interest) distribution, the fund will receive a tax deduction up to the same amount.

Individual Savings Accounts
The annual investment limit is increased to £10,200, up to £5,100 of which can be saved in cash. These higher limits will be available to people aged 50 and over from 6 October 2009 and to everyone from 6 April 2010.

Avoidance Using Life Insurance Policies
Legislation will be introduced from 6 April 2009 to counter schemes that are designed to exploit income tax loss relief rules using offshore life insurance policies. The new rules will “put beyond doubt” that claims for income tax loss relief cannot be claimed.

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EMPLOYEE TAXATION

Changes to company car tax from 2011/12

The From 2011/12 the following changes will be made to the tax rules in respect of company cars:

Blackstone Franks' Reaction: The removal of the price cap is likely to cause a reappraisal of whether expensive cars should be provided by an employing company or whether the car should be bought by the employee and a mileage allowance claimed for business mileage. An annual tax charge of 40% of 35% of the cost of a £150,000 car amounts to £21,000 of tax.

Living accommodation: payments of lease premiums

Where accommodation is provided to an employee by reason of his employment and the accommodation is leased by the employer under a lease of 10 years or less, any lease premium will be treated as additional rent. The taxable amount in each tax year will be the appropriate portion of the lease premium (spreading it rateably over the duration of the lease) plus the amount of any rent paid by the person at whose cost the accommodation is provided, and less any amount made good by the employee.

Pensions Tax Relief

From April 2011 tax relief on pension contributions will be restricted for those with incomes over £150,000. The value of the tax relief for pension contributions by employees (and the self employed) will be tapered down until it is 20 per cent for those on incomes over £180,000, making it worth the same for each pound of contribution to pension entitlement as for a basic rate taxpayer. In anticipation of this change, the Government is introducing legislation to prevent individuals taking advantage of the current rules, by making substantial additional pension contributions prior to the restriction taking effect.

Relief for contributions after 21 April 2009 will be limited to 20% to the extent that a person’s total pension contributions exceeds £20,000. The restriction will not apply if a person does not increase his pension savings above his normal pattern of regular pension savings.

Blackstone Franks' Reaction: Unfortunately the normal pattern will be defined as “contributions paid under arrangements made prior to 22 April 2009 that are paid quarterly or more frequently and at a rate that does not increase”. It will be noted that this does not even cover regular arrival premiums. Effectively many people with incomes over £150,000 are likely to find tax relief for their pension contributions capped at 20% from 21 April 2009 (rather than phased out from 6 April 2011) to the extent that they exceed £20,000. .

Taxation of Payments from the Financial Assistance Scheme

Where a final salary pension scheme was wound up between 1 January 1997 and 5 April 2005 because it was no longer able to meet all its pension obligations, it may have qualified for assistance from the Financial Assistance Scheme (FAS). From that date the Pension Protection Fund has been performing a similar function. The FAS is not a pension scheme. It makes payments to the members of qualifying pension schemes to top up any pension payments made by the scheme, bringing the total paid up to 90 per cent of the pension entitlement, subject to an overall cap. The FAS is being extended so that it will in future be responsible for making all of the payments due to qualifying members, including lump sums. Accordingly the rules will be changed to treat it in the same way as a registered pension scheme, so that pensioners will obtain broadly the same tax treatment as if their payments had been made by a registered pension scheme.

A similar provision will be introduced in relation to payment from the Financial Services Compensation Scheme.

Save As You Earn (SAYE) Process Simplification

From 29 April 2009 HMRC rather than the Treasury will be responsible for fixing the rates of interest on SAYE contracts. They will also be able to validate savings contracts affected by rate changes.

Anti-avoidance: Employee Liabilities

As previously announced, from 12 January 2009 artificial schemes that are designed to create an employment liability on an employee, such as damages for negligence in carrying out their work, and the legal costs of defending such claims will be blocked. These schemes typically involve the creation artificially of a liability which crystallises a payment due from the employee, with a corresponding benefit being provided elsewhere in the scheme to the employee to insulate him from the “loss” created by his paying the liability.

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CORPORATION TAX

Rates

The main rate of corporation tax remains at 28%.

The small companies rate remains at its 2008/09 level of 21% for the 2009 financial year, the intended increase to 22% having been deferred until 2011.

Connected Companies: Loan Relationships

Currently, a creditor company that formally releases a connected debtor from a trade debt (or a debt incurred in a UK or overseas property business) is denied a deduction for the loss on the debt, but the debtor company can be taxed on its ‘profit’. From 1 April 2009 legislation will be introduced that will treat any ‘profit’ arising from the release of a trade debt as not being chargeable to tax where the debtor and creditor are connected companies, thus equalizing the rules.

Blackstone Franks' Reaction: This is a welcome relaxation. This has been a tax trap for a number of years. Furthermore it has never been wholly clear in many cases to what extent an intercompany account might be regarded as arising from trading transactions – actually the law covers any transactions that create a tax deduction for the amount, not just trading transactions. The change will facilitate reorganisations of groups that include dormant or loss-making companies.

A further change to be made will allow a deduction for unpaid interest payable by a debtor to a connected creditor on the ‘accruals basis’ rather than on the ‘paid basis’. This amendment will not affect the treatment of such interest payments if the creditor company is resident in a non-qualifying territory (broadly speaking, a tax haven). Additionally, anti avoidance legislation will be introduced if this relaxation in the rule is abused.

Blackstone Franks' Reaction: For the first accounting period which begins after 31 March 2009 it will be optional whether to claim relief on an accruals or a payment basis where interest is not paid within 12 months of the due date. This can be important in the context of group relief, as the method of claiming relief will determine into which accounting year the interest falls.

Agreements to Forgo Tax Reliefs

New legislation will ensure tax provisions that grant automatic reliefs from tax (for example the offsetting of brought forward losses against current years profits) will be overridden where a person has agreed with the government to forgo these tax reliefs in order to obtain taxpayer support, such as under the Asset Protection Scheme. The legislation will also ensure that there is no tax relief for any expense or loss representing the amount of, or rights to, reliefs forgone under the arrangements.

North Sea Fiscal Regime

A number of amendments to current legislation are being made. These affect the taxation of Oil and Gas companies in the North Sea including alterations to the ring fencing rules to facilitate change of use activities where North Sea assets and infrastructure are reused for purposes other than oil and gas production, the chargeable gains rules to make it easier to allow companies to transfer their UK and UKCS assets to those most able to maximise their potential, an extension to the PRT rules that provide relief for decommissioning costs under certain conditions and the RFCT legislation which will be amended to fully align the definition of a consortium with the general corporation tax (CT) definition. Additionally, a ‘Field Allowance’ will be introduced to reduce the tax burden on certain challenging new developments.

Legislation will be introduced in Finance Bill 2009 (effective 22 April 2009) to prevent oil and gas companies claiming tax relief for infrastructure decommissioning costs too far in advance of the actual decommissioning being undertaken. It will do so by ensuring that tax relief for decommissioning will only be given in respect of those costs that relate to the work actually carried out in the accounting period.

Life Insurance Companies

A number of the proposed changes in the 2008 budget are being introduced in the 2009 Finance Act. We have not covered these here as they are unlikely to be of interest to most of our clients.

Lloyd’s Corporates: UK Dividends Exemption

Corporate members of the Lloyd’s insurance market will no longer pay corporation tax (CT) on dividends and other distributions received from UK companies, bringing them into line with general insurance companies which are not currently chargeable on UK dividends and distributions received. This will apply to distributions received on or after 1 July 2009.

Group Relief: Preference Shares

Legislation will be introduced in Finance Bill 2009 to ensure that companies issuing preference share capital with an element of equity protection to external investors do not lose the ability to claim and surrender group relief with other members of their group.

These changes provide for most preference shares (fixed-rate or otherwise) to be defined as ‘relevant preference shares’ so the holders need not be treated as participators when considering if two related companies form a group. This allows companies to seek finance without accidentally breaking up a group structure and denying previously grouped companies group relief.

This is effective for accounting periods commencing on or after 1 January 2008 unless an election is made to retain the existing treatment for shares issued before 18 December 2008 (or shortly after where a commitment to issue the shares was entered into before that date).

Groups: Reallocation Of Chargeable Gains

From the date of Royal Assent to the 2009 Finance Bill groups of companies will be able to transfer capital gains and losses between group companies in place of the current rule that required a deemed transfer of the assets. It is claimed that this will avoid the complexities of the current regime. It also extends the relief to cover losses on deemed disposals, such as a negligible value claim, where the gain or loss does not trigger an actual disposal.

Foreign Denominated Losses

Legislation will be introduced to prevent a company getting an unfair advantage or suffering an unfair disadvantage due to exchange rate fluctuations and the need to compute UK profits for corporation tax purposes in sterling. For accounting periods commencing on or after 29 December 2007 (or if elected the first accounting period beginning on or after Royal Assent of the 2009 Finance Bill), where a company incurs a tax loss computed in a currency other than sterling and then offsets that loss (or part of that loss) against profits in a different accounting period, the same exchange rate will have to be used to convert the losses into sterling as that used for the conversion of the profits against which the loss is to be offset.

Blackstone Franks' Reaction: This sounds helpful at first glance. However it is likely to be a nightmare in practice. Normally a company will prepare its computations in sterling and carry forward any resultant losses in sterling. In future it will be necessary to carry forward the loss in the foreign currency and convert it to sterling when profits arise against which it is to be offset. It will also become necessary to identify which losses are being used where a company incurs losses over several years and subsequently realises profits that utilise part only of the accumulated losses.

Transfers of Business Between Mutual Societies

Legislation in Finance Bill 2009 (effective 22 April 2009) will introduce a power to make regulations in relation to the taxation consequences on the amalgamation of mutual societies and transfers of the whole or part of a business of a mutual society to a another mutual society (or to a company or to a subsidiary company of a mutual society. Further detail is not provided here, as we believe it is unlikely to be of interest to most of our clients.

Investment Trust Companies (ITC): Investment In Interest Bearing Assets

An ITC is liable to corporation tax on any interest income it receives. From 1 September 2009, an ITC can elect to take a tax deduction for any distributions of interest made to its shareholders thus passing the tax burden on to its shareholders. Further rules will be introduced under secondary legislation (date not confirmed).

Double Taxation Relief On Dividends

UK companies are chargeable to tax on foreign dividends received but are entitled to double taxation relief in accordance with double taxation conventions. The tax relief is granted by reference to the prevailing tax rate on the date of receipt. Companies whose accounting periods span the financial year were unjustly affected by the change in higher rate corporation tax on 1 April 2008 as they were charged to tax at a hybrid rate (combining tax rates of two years in appropriate proportions), but received relief at only 28% if the dividend was received on or after 1 April 2008. Finance Bill 2009 will correct this by allowing relief at the hybrid rate. This measure will have retrospective effect from April 2008.

Corporate Intangible Fixed Asset Regime

Legislation will be introduced in Finance Bill 2009 to confirm that for the purposes of the regime, goodwill includes internally generated goodwill. It also confirms that all goodwill is treated as created in the course of carrying on the business in question and is thus outside the scope of the intangible fixed asset regime where the business started before 1 April 2002. Some amendments will also be made to the definition of intangible asset and to the rules determining whether assets representing non-qualifying expenditure are treated as being created before or after 1 April 2002.

Anti-Avoidance: Financial Arrangements

Legislation introduced by the 2009 Finance Bill (effective for debits and credits on or after 22 April 2009) will tackle two avoidance schemes concerning financial instruments. The first, concerns borrowings between connected companies, where, due to the details of the arrangement, the debtor company’s debit does not match the contra credit in the creditor’s accounts producing a net loss for the group. The creditor company will be required to recognise additional credits to match the debtor’s debits, so eliminating any advantage. The second scheme concerns the derecognition in its accounts by a company of certain sorts of derivatives, thus avoiding tax on any gains on such an asset. This scheme is blocked by requiring the company to fully recognise any gains and losses on such a derivative contract.

Sale Of Lessor Companies

The rules governing the Sale of Lessor Companies are being amended so that they operate appropriately in complex transactions involving partnerships and consortia. The amendments will ensure, amongst others, that companies carrying on a leasing business in partnership benefit from the full amount of relief due (but will not be subject to a charge) as a consequence of an increase in their interest in the business and will prevent a charge being calculated when a partnership is dissolved or ceases to carry on a leasing business.

Anti-Avoidance: Foreign Exchange Losses

Legislation will be introduced (effective for arrangements after 22 April 2009) to counter certain avoidance schemes that have been disclosed HMRC. These schemes take advantage of certain matching provisions within the FOREX legislation. It has been possible for a UK company to enter into an arrangement that creates an allowable foreign exchange loss if a foreign currency moves in one direction, but does not give rise to a taxable gain if the currency moves in the opposite direction. Furthermore, certain arrangements have taken advantage of the same matching rule to produce a tax deduction for a forward premium on a forward currency contract – a loss dependent only on interest rates – without the counterparty being taxed on a corresponding profit.

Disguised Interest

Principles based legislation will be introduced in Finance Bill 2009 amending current anti-avoidance legislation tackling disguised interest so that, subject to exceptions, returns from arrangements that produce amounts economically equivalent to interest will be treated as interest for the purposes of corporation tax. The change will only apply to large companies. There will be exceptions for excluded income, namely returns arising to a company purely from an increase in the value of shares in a connected company, and income where it is reasonable to assume that it is not a main purpose of the arrangements to secure that the return is not charged to tax as income.

Manufactured Interest

Legislation is to be introduced (effective on payments made after 27 January 2009) to counter a recent High Court decision involving the tax treatment of deemed manufactured payments. It will ensure that the tax treatment follows Generally Accepted Accounting Practice. That decision cast doubt on the tax treatment of real manufactured payments for both payers and recipients and, in HMRC’s view, could result in payers being able to claim additional deductions for tax purposes that bear no relation to their economic position, and recipients being taxable on amounts in excess of their actual income. This legislation will prevent such adverse consequences on both the Exchequer and the taxpayer.

Blackstone Franks' Reaction: HMRC have always been bad losers. If the law does not coincide with their interpretation obviously the law needs to be changed to ensure that it does. The HMRC press release states that “Before the High Court decision the tax treatment of real payments of manufactured interest had never been questioned.” So how did the case get to court if the taxpayer involved did not question the legislation? The reality is that Gordon Brown revamped the legislation in 2004 and, like much of the legislation rushed through Parliament by Mr Brown, did not make a very good job of it.

Hedging Proceeds From Future Share Issues

The Loan Relationships and Derivative Contracts Regulations will be amended to cover the situation where a company announces a rights issue of shares denominated in a currency other than its functional currency and enters into a currency derivative contract to hedge the risk. Any exchange gain or loss on such a currency derivative contract will be permanently excluded from being brought into account for tax purposes unless any part of a gain is subsequently distributed to shareholders. In that case, to the extent that the gain has been distributed, the gain will be brought back into charge for tax purposes in the accounting period in which the distribution takes place.

Double Taxation Relief Avoidance: Banks Using Manufactured Overseas Dividends

Legislation will be introduced (effective from 22 April 2009) to deny relief for foreign withholding tax where the recipient of a Manufactured Overseas Dividend (MOD) has not borne the economic cost of the tax.

Double Taxation Relief Avoidance: Credit Abuse

To counter specific avoidance schemes, amendments to current legislation will be introduced to limit the credit for foreign tax paid on trade receipts of a bank to no more than the corporation tax arising on the relevant part of its trading profits. Banks were circumventing the current law by artificially diverting income into a non-banking group company and gaining double tax relief at a level that would not otherwise have been due. These amendments will put it beyond doubt that the restriction on double tax relief applies to any banking receipt where that income is artificially diverted to a non-banking company in the bank’s group. Furthermore, in calculating the amount of double taxation relief (DTR) available, a proportion of a bank’s average funding costs over all its transactions must be deducted.

Double Taxation Relief Avoidance: Repayment Of Foreign Tax

A UK company with a permanent establishment in some countries will pay tax on its profits in that country and claim credit for that tax against its UK tax liability. If subsequently that company pays a dividend to its parent company, the foreign country repays a substantial amount of the foreign tax paid, thus putting the Exchequer out of pocket. Legislation will be introduced to put beyond doubt that, where foreign tax paid under the laws of any territory is repaid, double taxation relief will be denied or withdrawn even if the tax has been repaid to a person other than the claimant.

Personal Accountability of Senior Accounting Officers of Large Companies

To ensure that the accounting systems in operation within large companies liable to UK taxes and duties are adequate for the purposes of accurate tax reporting, legislation will be introduced in Finance Bill 2009 to require:

• Senior accounting officers of such companies to take reasonable steps to establish and monitor that accounting systems within their companies are adequate for the purposes of accurate tax reporting;
• Senior accounting officers of such companies to certify annually that the accounting systems in operation are adequate for the purposes of accurate tax reporting or, specify the nature of any inadequacies and confirm that those inadequacies have been notified to the company’s auditors; and
• Such companies to notify HM Revenue & Customs (HMRC) of the identity of the senior accounting officer.

These new obligations will be supported by penalties chargeable respectively on the senior accounting officer personally and on the company for a careless or deliberate failure to meet the obligations set out above, and for the giving of a carelessly or deliberately incorrect certificate or notification.

Blackstone Franks' Reaction: This is a somewhat frightening move. In most cases the “senior accounting officer” of a major company, presumably the Finance Director, is likely to have little involvement in the day to day record-keeping, so imposing personal penalties on such a person seems wholly unreasonable. In practice, of course, it is highly improbable that any major company does not have an adequate accounting system, so an obligation to establish and monitor looks like an excuse. The idea is probably to try to force senior executives of large companies to take an interest in the company’s tax position. For many years HMRC have had the odd view that the tax department of large companies adopt tax avoidance schemes behind the back of the Finance Director and that Companies would not seek to avoid tax if the Board knew what was going on. Such a view of course bears no relationship to reality.

Real Estate Investment Trusts

HMRC will be given power by regulation to prevent restructuring within groups so as to allow properties to be let by one group company to another without the properties leaving the group while still meeting the REIT conditions.
There will also be other major changes to the REIT regime.

Taxation of Foreign Profits

The Finance Bill will introduce a “foreign profits package”. This has four elements.

1. Dividends and other distributions received from a foreign company after 30 June 2009 will generally be exempt from UK corporation tax in the same way as dividends from UK companies.
2. Relief for interest payments and other finance expenses will be restricted to the consolidated gross finance expenses of the group, i.e. the group interest payments as shown in its consolidated accounts. This will prevent a company from obtaining relief for intra-group is relief payments in circumstances where the corresponding income is not within the scope of UK tax. Unfortunately it also seems to deny relief for some arm’s length interest payments on borrowings by subsidiaries. This “interest cap” will not apply where the group consists entirely of small or medium-sized companies.
3. The CFC superior and non-local holding company exemptions and the acceptable distribution exemptions will cease to apply.
4. he rules requiring Treasury Consent for certain transactions will be repealed. However there will be a new post-transaction reporting requirement for most transactions with a value of £100 million or more.

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BUSINESS TAX

Capital Allowances

Temporary First Year Allowances

The 2009 Finance Bill will introduce a temporary first year allowance of 40% on qualifying expenditure incurred on or after 1 April 2009 (6 April 2009 for income tax) and before 1 April 2010. The allowance will apply to expenditure in excess of the Annual Investment Allowance cap of £50,000 per annum. Cars, assets for leasing and expenditure that qualifies for the special rate pool are excluded from the relief.

Blackstone Franks' Reaction: This temporary relief is designed to encourage companies to bring forward capital expenditure. It seems unlikely to do so in most cases. It will not affect most smaller companies and larger ones tend to plan capital expenditure well in advance. If the government really want such incentives to have an impact they probably need to enact the relief to cover expenditure for at least a three-year period. .

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Enhanced Capital Allowances For Energy Saving And Water Efficient Technologies

Enhanced Capital Allowances allow businesses investing in designated technologies that are deemed good for the environment to write off 100% of the expenditure on that investment against taxable profits in the year of purchase. The list of designated technologies will be extended to cover uninterruptible power supplies, to amend the designation of heat pumps to cover only air to water heat pumps, and to cover close control air conditioning systems.

Modernising Tax Relief for Business Expenditure on Cars

Major changes are being made to the tax treatment of cars bought or leased by businesses. The new rules will generally have effect for expenditure incurred (or leases entered into) on or after 1 April 2009 (on or after 6 April 2009 for income tax). Cars purchased before this date are subject to transitional provisions, which broadly continue the legislation before this change.

• The rate of Capital Allowances will be based on the car’s CO 2 emissions. Cars with CO2 emissions less than 160 g/km will be added to the main plant and machinery pool and attract 20% pa writing down allowances (WDA). Those with larger emissions will go into the special rate pool which attracts a writing down allowance of only 10% pa.

Blackstone Franks' Reaction: This is a major reform. There will be winners and losers. The government is obviously trying to induce businesses that provide company cars to aim for those with an emission rate below 160g/km, as the cost of such cars will in effect be written off twice as fast as those with highest emissions.

Losses: Extension Of Trading Loss Carry Back

The Chancellor introduced a temporary measure in his pre-Budget report of 24 November 2008 to allow losses to be carried back for up to three years. The 2009 Finance Bill will extend this carry back provision to cover losses incurred in accounting periods ended between 24 November 2008 and 23 November 2010 for companies and tax years 2008/09 and 2009/10 for unincorporated businesses. The amount of trading losses that can be carried back to the preceding year remains unlimited but a maximum of £50,000 of unused losses of any one year will be available for carry back to the earlier two years (in total).

Blackstone Franks' Reaction: This relief is welcome. However in many cases it is largely cosmetic. In many cases an individual or partnership’s 2008/09 loss is that for the accounting year to 30 April 2008 and a loss in that year as a result of the recession is unlikely. Accordingly in many cases it will only affect one year’s loss.

Anti-Avoidance: Plant And Machinery Leasing

Legislation will be introduced (generally effective on transactions entered into on or after 13 November 2008) to counter avoidance involving the leasing of plant and machinery. It will ensure that a business that enters into a sale and leaseback (or lease and leaseback) does not gain more relief than it would have done had it obtained loan finance, that tax is not avoided when a lessor grants a long funding lease, and that when a long funding lease ends the lessee has obtained an appropriate amount of relief. Additionally, legislation will be amended to widen the definition of what constitutes a sale and leaseback for capital allowance purposes to counter current avoidance schemes attacking the previous narrow definition.

Transfer Of Income Streams

Legislation will be introduced (effective on transfers of income from 22 April 2009) to ensure that receipts derived from a right to receive income (and which are an economic substitute for income) are taxed as income for the purposes of corporation tax and income tax. The legislation will be principles-based. It is intended to comprehensively tax the sale of income streams as income. The legislation will however specifically exclude transfers of income that result from the grant or surrender of leases or the disposal of any interest in an oil licence.

Authorised Investment Funds

Legislation will be introduced to give AIF’s and UK resident investors in equivalent offshore funds certainty that deferred transactions will not be treated as trading transactions for tax purposes. The legislation will set out a “white list” of transactions that will be regarded as non-trading.

There will also be an elective regime from 1 September 2009 for UK AIFs that will move the point of taxation from the AIF to the investors (who will then be taxed as if they had invested directly in the underlying assets).

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CAPITAL GAINS TAX

Annual Exemption

The capital gains tax annual exemption for 2009/10 is increased by £500 to £10,100 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 £250 to £5,050.

Offshore Funds

Legislation will be introduced from 1 December 2009 to revise the definition of an offshore fund to include some transparent vehicles (but not foreign partnerships). This will enable an investor in such a vehicle to treat the vehicle itself as an asset for CGT purposes, rather than having to ascertain his share of capital gains made within the vehicle itself.

An investor will also be able to elect to apply the new rules retrospectively to 2003/04. Such an election will be irrevocable and will apply for all years from the one in which the taxpayer opts for it to have effect.

Alternative Finance Investment Bonds

Relief from CGT will be provided for persons working to raise finance under the special Shari’a compliant regime by using UK land. No CGT will be payable on the transfer of property to or from the bond issuer or on the grant of a lease by the bond issuer to the person raising the finance, or on the eventual return of the land to that person when the arrangements have run their course.

The original owner’s right to capital allowances will also be preserved throughout such a transaction.

Stock Lending Arrangements

A CGT exemption will be introduced to cover the situation where a stock lending or arrangement terminates but the stock is not returned to the lender under the arrangement because of the insolvency of the borrower. The acquisition of replacement stock will be treated as though it were the return of the borrowed stock by the borrower.

No corresponding CGT relief is proposed for REPO arrangements.

Blackstone Franks' Reaction: We suspect that this was prompted by the collapse of Lehman Brothers, where this problem was highlighted. The liquidators refused to hand over any stock certificates until they could establish that the stock was not beneficially owned by Lehman Brothers. This caused massive problems for those who had lent stock to the bank.

Blackstone Franks' Reaction: It is disappointing that the government has not listened to the anguished cries from retailers to postpone the reintroduction of the 17.5% rate until 31 January 2010. Having to cope with a rate change in the middle of the January sales clearly imposes a massive burden on such people. At least Gordon Brown professed to be concerned about burdens on business, even if his concern was reflected far more in talk than in action. Mr Darling seems wholly unconcerned about the level of unnecessary cost that he imposes on business.

120 or less £16.43 (on £126) i.e. a reduction of £4.12
125 or less £24.65 (on £189) i.e. a reduction of £6.18
230 or less £55.82 (on £428) i.e. a reduction of £14.03
235 or less £57.52 (on £441) i.e. a reduction of £14.42

All of these amounts will increase on 1 January 2010 when VAT returns to its former rate of 17.5%.

Option to Tax Land and Buildings
Taxpayers who have previously made exempt supplies of land and buildings and now wish to opt to tax them require H M Revenue & Customs’ formal permission to do so unless they meet any one of four automatic permission conditions (APC). A new APC will apply from 1 May 2009. This will allow more taxpayers to opt to tax without seeking prior permission from the VAT Office.

Blackstone Franks' Reaction: Mr Darling is keeping us guessing. He has not actually said what the APC is going to cover. Until we know this we are not in a position to welcome it.

HMRC currently operates two informal concessions in relation to the option to tax. One applies when a taxpayer registers for VAT as a result of opting to tax and the other applies to taxpayers who are already VAT registered who opt to tax a property on which previous exempt supplies have been made. These concessions allow taxpayers on opting to tax to recover more VAT than would be possible if a strict interpretation of the VAT recovery rules were applied. Their operation complicates the procedure for opting to tax. One of these concessions, and some parts of the other concession have no valid basis in EU or UK law, and they will therefore be withdrawn on 1 May 2010. ..

Blackstone Franks' Reaction: This is a novel approach. We are going to simplify the tax rules by taxing you more heavily!

Reduced Rate for Children’s Car Seat Bases

The 5 per cent reduced rate of VAT for children’s car seats that has applied since 12 May 2001 will be extended to include the bases for such seats from 1 July 2009.

Cross-border VAT Changes 2010

A number of changes are being made as part of what is commonly called “the VAT Package”. This aims to make a number of changes over the period from 2010 to 2015.

Place of Supply of Services Rules

The new rules differentiate the place of supply in relation to supplies to business customers (B2B) and those to other consumers (B2C). The B2B rules aim to ensure that, as far as possible, VAT is due in the country in which the service is consumed (e.g. where the customer is established) rather than where the supplier is established. The result for UK business customers is that they will be liable to account for UK VAT on most services provided by their overseas supplier under the reverse charge provisions, rather than being charged overseas VAT by the supplier. This change will also affect businesses which account for VAT under the Tour Operators Margin Scheme.

The basic place of supply rule for supplies to non-business customers will remain unchanged, i.e. it will be where the supplier is established.

Blackstone Franks' Reaction: There are some hidden problems here. For example, what if the customer is below the VAT registration limit? It appears that the supply will escape VAT. What about a supply to a business for non-business use? The reverse charge applies.

As now, there will continue to be exceptions to the new general rule. Supplies to both business and non-business customers of cultural, artistic, sporting, scientific, educational, entertainment and similar services, as well as valuation and work on goods, will remain taxable where the service is performed when made to non-business customers. For supplies to business customers:

From 1 January 2010, a distinction will be made between short-time hire of means of transport for supplies (no more than 30 days or 90 days for vessels) and long-term hire. For short-term hire, the place of supply will be where the vehicle is put at the disposal of the customer. For long-term hire, the place of supply will fall under the new general rule. However, from 1 January 2013, the place of supply of long-term hire to non-business customers will be where the customer is established (except for long term hire of pleasure boats to non-business customers which will be treated as supplied where the boat is actually put at the customer’s disposal if the supplier has an establishment there).

There is no current exception for restaurant and catering services. From 1 January 2010 these services will be treated as supplied where they are physically performed.

Under the current rules the place of supply of intermediary services is in the same place as the service being arranged. This is subject to a simplification measure for supplies to business customers registered for VAT in another EU Member State. From 1 January 2010, the services provided by intermediaries to business customers will fall under the general rule. Supplies to non-business customers will be unchanged.

The place of supply of the transport of goods is where the transport takes place, except for intra-Community transport which is supplied in the place of departure. This rule will remain the same for supplies to non-business customers. Supplies to business customers will fall under the new general rule from 1 January 2010.

The place of supply of certain intangible services, e.g. legal advice, will continue to be treated as supplied where the customer belongs when provided to non-business customers outside the EC.

Ancillary transport services (such as loading, unloading or handling services) are deemed to be supplied where they are physically carried out. From 1 January 2010, these services will fall under the general rule when supplied to business customers. Supplies of these services to non-business customers will continue to be taxed where performed.

The place of supply of passenger transport services, the use and enjoyment provisions and electronically supplied services (for non-business customers) will remain unchanged.

For cross-border supplies, in most cases, the business customer will account for the VAT using the reverse charge procedure (and recover the tax subject to the normal rules) as happens now for a wide range of non-basic rule services.

Time of Supply of Services Rules

This measure makes changes to the time of supply rules for cross-border supplies of services. The changes will affect supplies treated as made in the UK under the reverse charge rules. The time of supply determines when VAT is to be accounted for. The changes are linked to the introduction of EC Sales Lists (ESLs) for services. They are intended to harmonise the reporting of cross-border supplies by the supplier (on an ESL) with the inclusion of the supply (by the customer) on the VAT return. There are other related changes to the place of supply of services (see above) and the VAT refund scheme. From 1 January 2010, the rules will be governed primarily by when a service is performed and a distinction will be made between single and continuous supplies.

EC Sales Lists

From 1 January 2010, businesses that supply services where the place of supply is the customer’s country will have to complete EC Sales Lists (ESLs) for each calendar quarter. It is currently only necessary to complete these lists for goods. The ESL will need to include the following information:

• the VAT registration number of the businesses to which the services were supplied; and
• the total value (excluding VAT) of those supplies to each of these businesses.

Blackstone Franks' Reaction: 1 January 2010 is less than nine months away. You need to start thinking what changes may need to be made to your systems to enable you to complete EC Sales Lists.

VAT Refund Procedure for Overseas Supplies

A new electronic VAT Refund procedure is being introduced across the EU from 1 January 2010 to replace the current paper-based system. From 1 January 2010 businesses established in the UK will submit claims for overseas VAT electronically on a standardised form to HM Revenue & Customs (HMRC) rather than direct to the Member State in which the VAT arose.

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STAMP DUTY LAND TAX AND STAMP DUTY

SDLT Threshold

The temporary £175,000 starting threshold for SDLT on residential property which was due to expire on 2 September 2009 will be extended to 31 December 2009.

Alternative Finance Investment Bonds

Relief from SDLT will be provided for persons wishing to raise finance under the special Shari ’a compliant regime by using UK land. No SDLT will be payable on the transfer of property to and from the bond issuer.

Shared Ownership

Relief from SDLT is currently available for some land transactions where the purchaser is a Registered Social Landlord. This relief will be extended from 22 April 2009 to

1. purchases under shared ownership schemes operated by profit-making Registered Providers of Social Housing where the scheme is assisted by public subsidy;
2. purchases by profit-making Registered Providers of Social Housing where the purchaser is assisted by public subsidy; and
3. purchases under Rent to Home Buy Schemes.

Leasehold Enfranchisement

There is also (in theory at least) an existing SDLT relief for leasehold enfranchisement where the purchaser is a statutory Right to Enfranchise (RTE) company. Unfortunately the legislation that creates RTE companies has not been brought into effect, so the relief is currently spurious. From 22 April 2009 the relief will be claimable by any nominee or appointee who acquires the freehold of a block of flats on behalf of leaseholders under a statutory right of leasehold enfranchisement.

Blackstone Franks' Reaction: The left hand doesn’t know what the right is doing? HMRC spent taxpayers’ money in taking a case before the courts to prove that the relief was illusory. We would have thought it would have been sensible to introduce a definition of an RTE company for SDLT purposes as soon as it became apparent that the relief could never apply. Well at least Alistair Darling can’t be accused of doing the obvious or adopting the simplest solution to a problem.

Stamp Duty

Stock Lending and Repurchase Arrangements

Relief from stamp duty and SDRT will be introduced to cover the situation where a stock lending or repo arrangement terminates but the stock is not returned to the originator under the arrangement because of the insolvency of one of the parties. This will be retrospective to 1 September 2008. The exemption will also apply where the borrower has provided collateral in the form of chargeable securities and where because of the insolvency of the borrower the lender (or seller) has to purchase replacement securities.
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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 2009	£325,000
	6 April 2010	£350,000

No further limits have yet been fixed.

Agricultural property and woodlands relief

These reliefs which currently apply only to property in the UK, the Channel Islands and the Isle of Man will be extended – with retrospective effective to 23 April 2003 – to cover such land anywhere within the European Economic area.

Blackstone Franks' Reaction: The limitation to UK land of course infringes EC law. Presumably the relief is having to be introduced six years back to avoid falling foul of the EU Commission.

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Landfill Tax

Standard Rate

The standard rate of landfill tax will increase by £8 per tonne to £48 per tonne from 1 April 2010.

Taxable Disposal

Changes will be made to reverse the Court of Appeal decision in the Waste Recycling Group case that the use of waste in relation to the landfill site itself is not a waste disposal. However the amendment will largely retain the effect of the judgement. HMRC want to make changes because it is important then to be able to establish whether a taxable disposal has taken place.

Climate Change Levy
Plastics sector
A restricted entitlement to claim relief is being introduced for the plastics sector in relation to supplies of electricity and liquified petroleum gas. The restriction is to ensure compliance with EU State aid rules.

Recovery of relief  

A mechanism will be introduced to enable HMRC to recover levy where a facility that claims relief fails to meet its targets. The recovery will be proportionate to the extent of such failure.

Low value solid fuel

Supplies of low value solid fuel valued at no more than £15 per tonne will become liable to the levy from 1 January 2010.

Gaming Duties

1. VAT will be removed from gaming participation fees from 27 April 2009.
2. The money prize limit for bingo duty exemption increases from £50 to £70 from 1 June 2009.
3. The rate of bingo duty increases from 15% to 22% from 27 April 2009.
4. Gaming duty will be reformed from 27 April 2009 to extend it to changes made in connection with equal change gaming in casinos and to remove the need to list individual games that attract the duty.
5. The gross gaming yield banding will be increased from 1 April 2009 in line with inflation.
6. The scope of remote gaming duty will be extended to cover remote bingo (and remove it from bingo duty) from 1 July 2009.
7. New definitions of “gaming” and “gaming machines” will apply from the date of Royal Assent to the Finance Bill.

Amusement Machine Licence Duty

The duties will be increased from 1 June 2009. These will also be new exemptions and an increase in some stake and prize levels.

Alcohol Duties

Alcohol duties are increased by 2% from 23 April 2009. HMRC say that this is 13p on a bottle of spirits, 1p on a pint of beer and 4p on a bottle of wine.

The warehousing for Export Drawback Scheme is being withdrawn from 1 June 2009.

Tobacco Product Duty
The rate of duty increased by 2% from 22 April 2009.

Hydrocarbon Oils
The duty rates for the main road fuels (unleaded petrol and heavy oil diesel) were increased by 1.84p per litre on 1 April 2009 and will be increased by a further 2p a litre from 1 September 2009. They will increase in subsequent years by 1p per litre above indexation.

The effective rate on the other hydrocarbon duties will similarly be increased.

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MISCELLANEOUS

Naming and Shaming Tax Evaders

Taxpayers on whom when penalties are imposed for

will be publicly named and shamed where the amount of tax involved is more than £25,000.

Each quarter HMRC will publish a list of such people showing

Those who make an unprompted disclosure or a full prompted disclosure within the required time (it is unclear what prescribed time) will not be named. Nor will those who are charged penalties for tax credits fraud.

Details will not be published until all appeal avenues against the additional tax and penalties are exhausted or have expired.

The start date for this measure has not yet been decided. However no details of deliberate defaults committed prior to the legislation becoming effective will be published.

Blackstone Franks' Reaction: Robert Maas is joint Chairman of the Tax Investigation Practitioners Group (TIPG) (which brings together the leading investigation practitioners). Coincidentally the Committee of TIPG met HMRC the day before Budget day. HMRC asked what members reaction to publication might be and got a unanimous response that it would be counterproductive, as such publication would deter people from volunteering to “come clean”. It’s puzzling why HMRC should have asked this if the Chancellor had already decided to introduce such a provision. It will be interesting to see if the exceptions for unprompted disclosures and full prompted disclosures will avoid this anticipated problem. Ireland introduced a similar provision some years ago. The general impression seems to be that it has had little or no effect. Indeed it is rumoured that in some rural areas people are puzzled by who is not on the list, rather than by who is. There is however a potential fear in the UK that segments of the popular press might whip up public opinion against well known people who evade tax, or local newspapers might do so locally, and as a result tax evaders might find their windows smashed or obscene messages indelibly inscribed on their houses or cars.

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The Powers Review

The Finance Bill will of course include the next instalment of the changes to HMRC powers. These include

1. The introduction of a clear statutory power for HMRC to reclaim overpayments of tax.
2. The introduction of voluntary managed payment plans to allow taxpayers to spread their income tax and corporation tax liabilities.
3. The introduction of a power for HMRC to collect small debts through PAYE.
4. A new third party information power to help HMRC trace debtors.
5. The extension of the new information powers to the environmental tax, insurance premium tax, SDLT, SDRT, IHT and PRT.
6. A new penalty regime for late filing of returns.
7. A separate penalty regime (in addition to interest) for late payment of tax.
8. A harmonised interest regime.

Blackstone Franks' Reaction: Robert Maas chairs the ICAEW Tax Faculty’s Enquiries and Appeals Sub-Committee which has been closely involved in the consultation on HMRC powers. However this has come as a bolt out of the blue to him. It is not something that HMRC have previously mentioned.

Customs Powers
The Finance Bill will clarify when HMRC (and the proposed UK Border Agency) can use their powers to check EU travellers and to verify whether travellers are arriving from the EU.

Vehicle Scrappage Scheme
The government have introduced (effective April 2009) a temporary vehicle scrappage scheme that will enable consumers who scrap vehicles older than ten years, which they have owned for longer than 12 months prior to 22 March 2009, to replace them with new vehicles at a discount of £2,000. The government have announced that this scheme will end by March 2010 or, when funding for the scheme has been exhausted, which ever is sooner.

Blackstone Franks' Reaction: So Peter Mandelson has been able to persuade Mr Darling to introduce his master plan for the British Taxpayer to save the German and French motor industries.

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Business Rates

As announced on 31 March 2009, the government have confirmed that they will enable businesses to spread the payment of the April 2009 inflation up-rating to business rates over three years. Additionally, businesses affected by the end of the 2005 transitional relief scheme will be able to spread the payment of the increase in their bills over three years.

A temporary increase for the 2009/10 financial year in the threshold at which an empty property becomes liable for business rates has also been introduced.

Business Support Service

The government introduced a Business Payment Support Service in the 2008 pre-Budget Report to aid businesses to meet their tax liabilities during difficult economic times. The government have confirmed that HMRC will continue this service for as long as it is needed and, effective 22 April 2009, this service will be expanded to allow businesses to offset future losses they expect to incur against profits from previous periods and thus avoid tax that they are unable to pay.

Offshore disclosure facility

HMRC are to introduce a second chance to disclose previously undisclosed offshore accounts. Individuals who make use of this facility will incur a fixed penalty, probably of 30% on any liability due. HMRC is also seeking to issue further information notices requiring financial institutions to provide information about offshore account holders.