UK Treasury Publishes 2009 Finance Bill

by Robert Lee, Tax-News.com, London

04 May 2009

Finance Bill 2009, which enacts many of the budget measures recently announced by Chancellor of the Exchequer Alistair Darling, was published by the Treasury on April 30.

The Financial Secretary to the Treasury, Stephen Timms, said: “Despite difficulties as a result of the global economic downturn, the government is confident that, by supporting people and businesses now, Britain will be well placed to make the most of the recovery when it comes. Through this Finance Bill we are delivering a comprehensive and coherent package of targeted support to build on support for households and businesses, alongside our strategy for a strong and sustainable recovery.”

The Lobby Notes, also published on April 30, briefly describe the clauses and schedules in the Bill. Selected clauses and schedules outlining the most significant income tax and administrative budget announcements are listed below:

Income tax

Clause 4 applies reductions from 2010-11 to the amount of an individual’s personal allowance, where their income exceeds GBP100,000.

Clause 5 and Schedule 1 provide for the withdrawal of personal allowances and reliefs from income tax for individuals not resident in the UK who have entitlement to those allowances or reliefs solely because they are Commonwealth citizens.

Clause 6 and Schedule 2 include the provisions for an additional rate of income tax and an additional rate for dividends and consequential amendments including increases to the trust rate and dividend trust rate. From tax year 2010-11 there will be a new additional rate (50%) of income tax that will apply to taxable income in excess of GBP150,000. A new 42.5% dividend additional rate will alternatively apply where dividends form part of an individual’s taxable income in excess of GBP150,000.

Value-added tax

Clause 9 and Schedule 3 provides for the standard rate of VAT to revert to 17.5% on January 1, 2010.

Stamp duty land tax

Clause 10 amends the provisions in Finance Act 2003 in order to raise the starting threshold for stamp duty land tax (SDLT) on residential property from GBP125,000 to GBP175,000.

Corporate tax

Clause 23 and Schedule 6 provide for a temporary extension to the income tax and corporation tax rules for carrying back trade losses.

Clause 24 provides for a temporary first-year capital allowance at the rate of 40% for a period of one year for spending by businesses on most plant and machinery that would normally qualify for a writing-down allowance at the 20% rate. The provision applies to spending on or after April 1, 2009 for businesses within the charge to corporation tax and on or after April 6, 2009 for businesses within the charge to income tax.

Clause 27 and Schedule 8 makes changes to the three venture capital schemes – the Enterprise Investment, Venture Capital Trust and Corporate Venturing Schemes.

Clause 34 and Schedule 14 determine the scope of the corporation tax charge on both UK and foreign company distributions. The rules for distributions received by small companies are distinct from the rules for medium and large companies, but in each case the result is that the great majority of distributions will be exempt from corporation tax. The Schedule contains anti-avoidance rules to prevent abuse of distribution exemption.

Clause 35 and Schedule 15 make provision for the restriction of the tax deduction available for finance expenses of groups of companies (the 'debt cap'). The effect of the new measure is to limit the aggregate UK tax deduction for the UK members of a group of companies that have net finance expenses to the consolidated gross finance expense of that group. The Schedule applies to a group that has either a UK or foreign parent. Finance expenses and finance income are payments of interest and interest like amounts.

Clause 36 and Schedule 16 provides for the amendment of the Controlled Foreign Company rules in chapter 4 of part 17 of the Income and Corporation Taxes Act 1988 (ICTA).

Clause 37 and Schedule 17 provides for the repeal of the Treasury Consents legislation in sections 765 to 767 of the ICTA and its replacement with a requirement to report the details of certain transactions whose value exceeds GBP100m to HM Revenue and Customs (HMRC).

Collective investments

Clause 44 and Schedule 22 provide for a new definition of an “offshore fund” to be used in tax legislation. The Schedule also provides for interests in certain offshore funds within the new definition to be treated as assets of the investors for the purposes of tax on capital gains (with the consequence that the underlying assets will no longer be treated as assets of the investors).

Clause 45 provides a power to make regulations that will allow investment trust companies to have the option to treat dividends as distributions of interest, and to provide that such distributions will be treated as interest payments to their shareholders. This will enable investment trust companies to invest in interest bearing assets tax efficiently.

Pensions

Clause 71 and Schedule 35 introduces an income tax charge at 20% for certain individuals on certain pension contributions and benefits accrued. This special annual allowance charge is on pension contributions and benefits accrued in excess of a special annual allowance of GBP20,000 for individuals whose relevant income is GBP150,000 or more.

Administrative

Clause 91 requires HMRC to prepare and maintain a Charter. The Charter will set out the standards of behaviour and values to which HMRC will aspire in dealing with taxpayers and others.

Clause 92 and Schedule 46 provide that senior accounting officers of large companies are required to take reasonable steps to ensure that the company and its subsidiaries (if any) establishes and maintains appropriate tax accounting arrangements.

Clause 93 provides for the Commissioners for HMRC to publish information (including names) of persons who have been penalised for deliberate defaults where the tax lost exceeds GBP25,000.

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