Legislation Day 2023: At a glance

On 'L-Day', 18 July 2023, the government published draft legislation intended for the next Finance Bill, together with new consultations on future tax policy changes and there are also some new announcements. Further draft legislation is due next week.

Measures relate to:

  • Share sales and share schemes
    • Enterprise Management Incentives (EMI).
    • Company sellers, owners and participators.
  • Pensions 
    • Pensions tax relief: amendments to the relief at source (RAS) legislation.
    • Lump sums & abolishing the pensions lifetime allowance (LTA).
  • Companies
    • Clarifications of the rules for cultural tax reliefs.
    • Creative industry tax reliefs: administrative changes.
    • Reform of audio-visual creative tax reliefs to expenditure credits.
    • Research and Development reform — additional tax relief.
    • R&D Tax Reliefs Review: Consultation on a single scheme Merging RDEC and SME relief.
    • Multinational top-up tax: adoption of the undertaxed profits rule and other amendments.
  • Post Office compensation schemes.
  • Inheritance Tax (IHT).
    •  Agricultural Property Relief (APR) and Woodlands Relief.
  • Tax Avoidance.
    • Increasing the maximum prison term for tax fraud.
    • Tougher consequences for promoters of tax avoidance.
  • Plastic packaging tax.
  • Real Estate Investment Trust regime.
  • Changes in HMRC data collection.
    • Employers.
    • Company owners.
    • Self-employed.

Overview of announcements and publications

Shares and share schemes

Enterprise Management Incentives (EMI)

  • Measures extend the time limit for a company to notify HMRC of a grant of an Enterprise Management Incentives (EMI) share scheme option.
  • The current time limit to notify HMRC is 92 days after the grant was made. The new rules now allow you until 6 July following the end of the tax year in which the grant was made.
  • A further amendment will be made to provide that the 12-month enquiry window will run after 6 July following the end of the tax year in which the option was granted.
  • This measure applies to options granted on or after 6 April 2024.

See Enterprise Management Incentives (EMI)

Company sellers, owners and participators

A new consultation on changes to the taxation of Employee Ownership Trusts (EOT) and Employee Benefit Trusts (EBT) aims to close some of the well-known potential tax loopholes in the rules and reduce the scope for tax avoidance by company sellers and participators, measures include:

  • Ensuring that ex-owners cannot control the board of trustees.
  • Ensuring that ex-owners cannot control the EOT via a corporate body.
  • Ensuring that EOT trustees do not avoid later CGT by being non-resident.
  • Funding EOTs: correcting the distribution issue.
  • Funding for EOTs: confirming no s.464 participator tax charge.
  • Flexing the £3,600 Income Tax-free bonus rules.
  • Preventing participators from benefiting from EBT capital after the seller's death.
  • Adding a two-year rule to EBTs for IHT relief.
  • Ensuring that EBT participators do not benefit from EBT income.

See Consultation to close EOT and EBT loopholes

Pensions

Pensions tax relief: amendments to the relief at source (RAS) legislation

This affects pension scheme administrators (PSAs) who claim tax relief for their members through relief at source (RAS) arrangements

  • HMRC needs to correct the legislative framework for new RAS regulations in digitising Pension Tax Relief, including RAS claims.
  • New regulations are needed to cover how pension scheme administrators (PSAs) should claim tax relief on eligible contributions made to registered pension schemes from 6 April 2025.
  • These measures are to deal with non-compliance with the new RAS regulations as grounds for de-registration and to make provision for different relevant rates in regulations.

Abolishing the pensions lifetime allowance (LTA)

The pensions lifetime allowance (LTA) was abolished from 6 April 2023 and a limit was placed on the total amount of tax-free cash an individual can receive to a maximum of £268,275 unless they hold a valid lifetime allowance or lump sum protection. 

It also limits the total amount of lump sums an individual can receive before marginal rate taxation applies to £1,073,100 unless they hold a valid lifetime allowance protection. The measure ensures that the receipt of regular pension income does not contribute towards either of these limits.

Draft legislation is published adding in further measures in abolishing the LTA to clarify:

  • The tax treatment of pension savings, including how pensions lump sums and lump sum death benefits will be taxed in its absence.
  • The position of individuals with LTA protections, lump sum protections or LTA enhancement factors.
  • The function of BCEs.

See Pensions: Tax rules & planning

Companies
Clarifications of the rules for cultural tax reliefs

Draft legislation has been introduced, clarifying how the rules are intended to work, for the following cultural tax reliefs:

The clarifications provide clarity around definitions, exclusions and qualifying criteria and will have effect from 1 April 2024.

Creative industry tax reliefs: administrative changes

Administrative changes have been made to the creative and cultural tax reliefs.

  • Relief claims will require an online information form to be submitted as part of the claim.
    • The form will be mandatory for all claims including the new audio-visual reliefs.
    • For the new audio-visual reliefs, the form will be mandated from 1 January 2024, in line with the start of the reliefs.
    • For existing reliefs, the form will be mandated from 1 April 2024.
  • Other changes will address anomalies and unforeseen consequences.

See Creative Industries Tax Reliefs: At a glance

Reform of audio-visual creative tax reliefs to expenditure credits

As announced in the Spring Budget 2023, new legislation has been published for the new Audio-Visual Expenditure Credits.

  • The reliefs, based on the RDEC, will have effect from 1 January 2024 and will replace:
    • Film Tax Relief (FTR).
    • High-End TV Tax Relief (HETV).
    • Animation Tax Relief (ATR).
    • Children’s TV Tax Relief (CTR).
    • Video Games Tax Relief (VGTR).
  • There will be two types of credit: one for the audio-visual reliefs (the four film and TV reliefs) and one for video games.
  • Video games, film and high-end TV will have a rate of 34%.
  • Animation and children's TV will have a rate of 39%.

See Film, Animation and TV tax relief

Research and Development reform — additional tax relief 

  • Draft legislation has been published that introduces a higher rate of relief for R&D-intensive companies, where they are also loss-making.
  • The changes have effect from 1 April 2023.
  • R&D intensive is where 40% or more of expenditure is on R&D.
  • The higher credit will be 14.5% instead of the current 10% for other SMEs.

See R&D Tax Relief: Overview

R&D Tax Reliefs Review: Consultation on a single scheme Merging RDEC and SME relief

HMRC have published the responses received to R&D Tax Reliefs Review: Consultation on a single scheme. The consultation sought views on combining the current SME and RDEC R&D Tax Reliefs.

  • There has been no decision as yet as to whether the merged scheme will be implemented.
  • If it goes ahead, it will have effect from 1 April 2024.
  • Draft legislation has been published.

See Consultation responses: R&D Tax Relief Review

Multinational top-up tax: adoption of the undertaxed profits rule and other amendments

  • As part of the UK's commitment to the OECD's Pillar 2, the Finance Bill 2023-24 will provide for the Undertaxed Profits Rule (UTPR) to have effect no earlier than for accounting periods beginning on 31 December 2024.
  • The UK's adoption of the Multi-national Top-Up Tax (Income Inclusion Rule) and the Domestic Minimum Tax will take effect for accounting periods beginning on or after 31 December 2023 and was enacted in the Finance (No 2) Act 2023.

See BEPS & Diverted Profits Tax (for SME owners)

Post Office compensation schemes

Retrospectively, from 19 April 2021 and 8 August 2022:

  • Draft legislation provides that the ultimate recipient (e.g. a shareholder, director or employee) of Post Office compensation will be taxed in a similar way to an individual who received the compensation directly.
    • Group Litigation Order payments will be exempt from tax at both corporate and individual level. 
    • Horizon Shortfall Scheme payments will be exempt at the corporate level. Onward payments to individual recipients remain taxable to the extent the original source of compensation was taxable. 
    • Any amount of payment made to resolve an increase in the rate of taxation will be exempt from tax.

See How Post Office Horizon Compensation receipts are taxed

Inheritance Tax (IHT)

  • From 6 April 2024, the geographical scope of Agricultural Property Relief (APR) and Woodlands Relief for IHT purposes will be restricted to property in the UK.
  • Property located in the European Economic Area (EEA), the Channel Islands, and the Isle of Man will be excluded from relief for:
    • Transfers of value and other occasions of charge made on or after 6 April 2024.
    • Transfers of value made before 6 April 2024, for the purposes of any charge to tax, or extra tax, arising on or after that date.

See IHT Agricultural Property Relief and Woodlands: Overview

Tax Avoidance

Increasing the maximum prison term for tax fraud

  • HMRC have issued a policy paper setting out new proposals to double the maximum prison term for individuals convicted of serious tax fraud. Draft legislation is included in Finance Bill 2023-24.
  • Currently, the maximum criminal sentence for what HMRC describe as ‘egregious’ examples of tax fraud is seven years in prison. It is proposed that this is increased to fourteen years from the date of Royal Assent of Finance Bill 2023-24.

See 14-year prison sentences for tax fraud


Tougher consequences for promoters of tax avoidance

HMRC have published a response to their Consultation ‘Tougher Consequences from promoters of tax avoidance’ together with draft legislation in Finance Bill 2023-24 which, from Royal Assent of the Finance Bill:

  • Introduces a new strict liability criminal offence resulting in unlimited fines and a potential prison term of up to two years where there is evidence that there has been promotion in breach of a Stop Notice.
  • Gives HMRC the power to apply to the court for a disqualification order in respect of directors and other persons who control or exercise influence over a company which is involved in promoting tax avoidance and operating against the public interest.
    • The proposal would maintain the current civil and criminal sanctions for those breaching a disqualification order or helping disqualified directors which are:
      • A criminal sanction resulting in imprisonment, a fine or both.
      • A civil sanction of personal liability for certain company debts.

See Tougher sanctions for promoters of tax avoidance

Plastic packaging tax

HMRC has published a consultation Plastic Packaging Tax - chemical recycling and adoption of a mass balance approach.

  • It is seeking views on using a mass balance approach to determining the amount of chemically recycled plastic within a plastic packaging component.
  • The current operation of Plastic Packaging Tax (PPT) means those businesses using chemical recycling are still having to pay PPT, even though components with 30% or more recycled plastic are exempt.
  • The consultation is open until 10 October 2023.

See: Plastic Packaging Tax

Real Estate Investment Trust regime 

As part of the ongoing review of the UK funds regime, this measure will make further changes to enhance the Real Estate Investment Trust (REIT) regime rules. These changes:

  • Amend the condition that a REIT is not a close company to make sure the rule works as intended.
  • Allow insurance companies to hold group REITs.
  • Amend the profit-to-financing cost ratio to make sure it works as intended.
  • Amend the rule that deals with the interaction of the REIT rules with the corporate interest restriction rules.
  • Amend the rule that allows a REIT to hold a single property.
  • Amend the rule that exempts gains on the disposal of UK property-rich entities.

Changes in HMRC data collection

One for agents and software developers to note.

From some time after 2025:

  • Employers will be required to provide more detailed information on employee hours worked using Real-Time Information PAYE reporting.
  • Shareholders who are company-owner managers in owner-managed businesses will need to use their Self Assessment tax return to provide both:
    • The amount of dividend income received from their own companies separately to other dividend income.
    • The percentage share they hold in their own companies.
  • The self-employed will need to provide information on the start and end dates of their self-employment using their Self Assessment tax return.

These changes have been mooted for some time and as the Policy paper says that these changes will improve the quality of data collected by HMRC. 

External links

Finance Bill & L Day documents 2023-24

 

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