Legislation will be introduced in Finance Bill 2010, to come into force in the autumn, to strengthen and improve the Disclosure of Tax Avoidance Schemes (DOTAS) Regime. These changes will ensure that HMRC continues to obtain early information about avoidance risks and that there are sufficient sanctions to penalise those who do not comply with the regime.
This measure increases the sanctions available to HMRC for tackling offshore non-compliance. Building on the existing behaviour-based penalty structure, the measure provides for increased penalties where the non-compliance arises in a jurisdiction which does not automatically share tax information with the UK.
As now, penalties will be calculated by looking at the behaviour of the taxpayer, the degree of disclosure and the amount of tax lost. However, the level of the tax-geared penalty will be determined by the tax transparency of the jurisdiction in which the non-compliance arises. Where a jurisdiction only exchanges information with HMRC on request, inaccuracies arising offshore will be subject to penalties at 1.5 times the existing rate. Where a jurisdiction shares no information with HMRC, penalties will be at twice the current rate.
This means that deliberate failures to report income or gains from the most opaque tax jurisdictions could be met with penalties of up to 200% of the tax.
The new penalty frameworks for offshore non-compliance will apply to income tax and capital gains tax.
The Government is also introducing a Targeted Anti-Avoidance Rule (TAAR) from 24 March 2010, to focus this measure (which increases the AIA from £50,000 to £100,000 for expenditure incurred on or after 1/6 April 2010) on supporting genuine business investment.
This measure prevents relief for capital losses on foreign currency bank accounts where money withdrawn is liable to income tax under the remittance basis and there is no real economic loss. The change was announced in a Ministerial statement on 16 December 2009, and is effective from that date. An HMRC technical note was published on 23 December 2009.
Legislation in Finance Bill 2010 will introduce powers for HMRC to require a financial security from employers who have a history of serious non compliance in terms of paying late or not paying their pay as you earn (PAYE) income tax. The detail will be set out in regulations, which will be published for consultation before they are made. The measure will affect those who are determined not to pay and will not affect those who need time to pay and who make payment arrangements with HMRC.
The Government will be taking action to prevent attempts to avoid tax and National Insurance contributions through the use of Employee Benefit Trusts and other arrangements to disguise payments of remuneration and intends to introduce anti-avoidance legislation to take effect from 6 April 2011.
A new Hidden Economy Advisory Group was announced as part of the 2009 Pre-Budget Report. The Advisory Group will consider what actions HMRC can take to increase the number of people that make the transition from the hidden to the formal economy. HMRC will continue to work with the Group over the coming months to develop proposals for new hidden economy measures.
Legislation will be introduced in Finance Bill 2010 to stop companies using tax-advantaged Company Share Option Plans (CSOP) for avoidance by prohibiting the grant to employees of CSOP options over shares in a company which is under the control of a listed company. The measure will have effect in relation to options granted over shares in a company which is under the control of a listed company on or after 24 March 2010.
The amendments to the double tax relief (DTR) rules in the Taxation (International and Other Provisions) Act 2010 (TIOPA) will ensure that a person may only deduct foreign tax from any foreign income where that person has included the foreign tax in his taxable income. Other amendments to TIOPA will reaffirm the scope of the targeted DTR anti-avoidance rule.
There will be a review and consultation, during 2010, on taxation of geared growth arrangements used in connection with employment related securities, to ensure employment income is subject to correct tax and National Insurance contributions.
New rules are being introduced to block tax avoidance schemes that exploit the rules for tax relief on gifts of qualifying investments to charities, effective from 15 December 2009. Qualifying investments consist of certain shares, securities and land.
HMRC has published a discussion document on whether to introduce a generic rule to counter schemes creating tax mismatches within a group as a result of the differing tax treatments of loans or derivatives
Work will be undertaken over the summer of 2010 to examine how Inheritance Tax (IHT) can be brought within the regime for the Disclosure of Tax Avoidance Schemes (DOTAS).
Amongst other things, this will examine whether appropriate descriptions (known as "hallmarks") that govern what must be disclosed can be developed in an IHT context. The Government recognises that any DOTAS regime would need to address avoidance in a way that works efficiently for all concerned.
This clarifies that the definition of a relevant person for the purposes of the remittance basis includes subsidiaries of non-resident companies which would be close companies were they resident in the UK.
Changes are being introduced in Finance Bill 2010 to combat abuse of the Corporation Tax (CT) deduction provision for SIPs, where companies pay money to SIP trustees to buy shares from existing shareholders for use in the SIP, but no shares with any real value are transferred to employees under the SIP. The changes also strengthen the provisions which allow HMRC to withdraw approval of a SIP in cases where alterations to share capital or changes in rights attaching to the shares materially affect the value of shares held by the plan trustees. The measure will have effect in relation to payments made and alterations to share capital or rights attached to shares taking place on or after 24 March 2010.
With effect from the announcement made on 21 October 2009, legislation will be introduced to prevent abuse of the rules on sideways loss relief. HMRC published draft legislation, an explanatory note and guidance for this change on 21 October 2009.
Informal consultation with stakeholders will continue on the proposed rules that will replace the substantial donors to charities legislation in the light of the extension of charitable tax reliefs to certain European organisations (see the announcement "Extending Charity Tax Relief to European organisations").
Legislation will be introduced in Finance Bill 2010 to replace the existing transactions in securities legislation with clearer legislation targeted more effectively at arrangements involving income tax avoidance.
The Government has decided to bring forward revenue protection legislation to:
The controlled foreign company (CFC) regime provides anti-avoidance rules which protect the UK corporation tax base from erosion. The new CFC rules to be introduced as a consequence of the reform process will be targeted on artificial diversion of UK profit and not on taxing profits that are genuinely earned in overseas subsidiaries. Following the publication of a discussion document in January 2010, a consultation period is running to 20th April 2010. The intention is to introduce the new CFC regime in FB2011.
As announced at 2009 Pre Budget Report, companies and groups holding index-linked gilt edged securities ('ILGs') that enter into arrangements such that they are not exposed to the inflationary aspect of holding the ILG will no longer benefit from the tax-free uplift in carrying value. The legislation is proposed to have effect with respect to increases in retail prices index that impact on the carrying value of an ILG that fall after the date of announcement at 2009 Pre-Budget Report- 9 December 2009.
As announced at the 2009 Pre-Budget Report, where companies and groups enter into arrangements that seek to pass on exchange risk to the Exchequer ('overhedging' and 'underhedging' structures), any losses, other than the real economic loss at group level, resulting from those arrangements will be ring-fenced. The proposed legislation will have effect for accounting periods beginning on or after 1 April 2010. Transitional rules will apply where there are arrangements and/or accounting periods that straddle this date.
It was announced in the 2009 Pre-Budget Report that legislation would be introduced in Finance Bill 2010 to prevent avoidance involving fees charged under a separate contract and draft legislation was published for comment. Following further consultation with industry representatives, revised legislation has been published to close this loophole, which takes effect from today, 24 March 2010.
This measure, to modify the rules for apportioning the income and gains of a non-profit fund between categories of insurance business, was announced at 2009 Pre Budget Report. A technical note published today, 24 March 2010, gives details of an anti-avoidance rule to form part of the legislation. The Government has announced its intention to modify the transfer of business rules as soon as is practicable.
This measure amends existing legislation to ensure that postponed gains are brought back into charge when an overseas branch of a UK company transfers assets to a non-resident company. The change is effective for disposals of securities on or after 6 January 2010.
Legislation - announced on 9 February 2010 - will clarify the corporation tax treatment of manufactured payments received in the course of sale and repurchase (or "repo") transactions. The proposed legislation puts beyond doubt that amounts to be brought into account for tax purposes by companies in respect of manufactured payments are those that are taken into account in accordance with generally accepted accounting practice. As originally announced, the Government proposes that this legislation will have effect from the date the repo rules were introduced-1 October 2007.
Legislation will be introduced in Finance Bill 2010 to offer an option to elect for an alternative treatment to that imposed by the original legislation on the sale of a lessor company. Draft legislation was published at 2009 Pre Budget Report; this will be amended to ensure that the election operates fairly and that the full amount of tax will be collected on the profits of the leasing business following the sale.
Some companies and individuals currently exploit the stamp duty land tax (SDLT) partnerships rules by artificially reducing the SDLT payable on some land transactions. Legislation will be introduced in Finance Bill 2010 to ensure that the existing SDLT anti-avoidance rules apply to transactions undertaken by partnerships. The legislation will have effect for transactions on or after 24 March 2010 (subject to transitional rules).
This measure aims to prevent avoidance of the higher rate stamp duty reserve tax charge that applies when chargeable securities are issued to a clearance service or depositary receipt system. Provisions will be introduced in Finance Bill 2010 to remove the stamp duty reserve tax exemptions where chargeable securities intended for non-EU markets are initially routed through an EU clearance service or depositary receipt issuer prior to transfer to a non-EU clearance service or depositary receipt issuer.
The way long cigarettes are treated for duty purposes is to be changed. Where cigarettes are longer than 8cm (excluding tip), each additional 3cm (or part thereof) is treated as another cigarette for duty purposes. For example a cigarette 12cm in length would be treated as three cigarettes. This is a technical change which is designed to stop a tax avoidance method.
Changes are to be made to the Postal Services Act 2000 to strengthen customs powers to tackle tobacco smuggling in the post. Postal operators have the power to stop packets which they suspect contain smuggled goods and pass these to customs. Currently HMRC have to notify the addressee and invite them to attend before such packets can be opened. This requirement will be removed.
The Income Verification Scheme, through which HMRC has details of potentially fraudulent income declarations of individuals applying for a mortgage referred to it by financial institutions, is to become an ongoing facility.
Legislation in Finance Bill 2010 will allow the reverse charge to combat VAT Missing Trader Intra-Community (MTIC) fraud for goods to apply equally to services. A reverse charge will be introduced for supplies of emissions allowances, from 1 November 2010, the effect of which will be that a VAT registered business purchasing allowances will account for and pay the VAT chargeable instead of the supplier. This will replace the interim zero-rate introduced in July 2009. Legislation will also provide an option for the introduction of reporting requirements to deal with fraud in the services sector. There will not be any additional reporting requirements for emissions allowances so suppliers will not be required to provide "reverse charge sales lists" for supplies of emissions allowances.
This measure updates the compliance checking framework for excise duties, covering information and inspection powers, record-keeping rules and time limits. The Government intends to legislate this in a Finance Bill to be introduced as soon as possible in the next Parliament.
Corporation tax (except for Quarterly Instalment Payments) and petroleum revenue tax are to be brought within the harmonised interest regime. This will complete the legislation started by Finance Act 2009.
The Government intends to legislate in a Finance Bill to be introduced as soon as possible in the next Parliament to bring VAT, Insurance Premium Tax, Aggregates Levy, Climate Change Levy, Landfill Tax and Excise Duties within the late filing and late payment penalty regimes. This will complete the legislative programme started in Finance Act 2009.
Draft legislation was published on 9 February 2010 to inform the consultation on deliberate wrongdoing. In response to early views HMRC has extended the period for consultation on the draft legislation until 28 April 2010.
HMRC is to introduce Roll Rate targets at 30 days and at 90 days from April 2010 as published in the HMRC Business Plan. Roll rate is the percentage of debt by value cleared after 30 and 90 days.
