NEW rules that will ban companies and individuals from engaging in aggressive tax avoidance schemes will not be implemented until at least summer 2013, according to draft legislation released yesterday.
The General Anti Avoidance Rule (GAAR), which will give HMRC the power to identify and act against legal tax arrangements that are “abusive”, was due to be enforced from April. Instead enforcement will have to wait until the Finance Bill 2013 receives royal assent.
There was also confirmation that HMRC will have the final word on which schemes it considers abusive, rather than an independent body.
Yesterday’s draft version of Finance Bill includes a smattering of new announcements, in addition to fleshing out policies previously announced in this year’s Budget and Autumn Statement.
It will ensure the main rate of corporation tax is cut to 21 per cent by 2014 and increase the tax-free allowance for personal income to £9,440 from April 2013.
There will also be substantial tax reliefs for investment in high-end television and computer games, as well as an “above the line” credit for investing in UK research and development activity even if a company does not pay domestic corporation tax.
Samantha Vanags of law firm Grant Thornton said the latter measure will lead to a “real bonanza” for R&D investment: “If a company spends £1m, it will get £70,000 in cash back from the government. “
Income tax relief will be capped at £50,000 or 25 per cent of income, though the legislation confirms that this now excludes charitable donations following an outcry this summer.
For the first time there will be a statutory residency test for deciding whether a person is a UK resident for tax purposes, rather than the previous ad-hoc approach. The oil industry welcomed greater clarity on tax relief for decommissioning old North Sea oilfields, saying it would encourage investment in new supplies.
However Eloise Walker, a partner at Pinsent Masons, said it could have done more to encourage investment: “We were briefly excited by the prospect of seeing the much lobbied-for infrastructure tax relief become reality. No such luck – the increased annual investment allowance for capital allowances to £250,000 is as exciting as it gets.”
WHAT’S IN THE BILL?
Tax-free personal allowance raised to £9,400 from April 2013.
Income tax relief capped at £50,000 per year or 25 per cent of income.
Main rate of corporation tax reduced to 21 per cent from April 2014.
A new statutory test to decide who will be treated as a UK resident for tax purposes.
A general rule against all abusive tax avoidance, administered by HMRC.
Legislation to support George Osborne’s employee-ownership scheme, offering shares in return for work rights.
Pensions tax relief capped at £40,000 a year and £1.25m across a lifetime.
Tax-free limit on life insurance policies capped at £3,600 a year from April 2013.
Bank levy increased in January to meet target of raising £2.5bn a year.
New research and development tax credits of 9.1 per cent for large companies.
Substantial tax breaks for companies making high-end television, computer games and animation.
Annual tax-free investment allowance for companies increased to £250,000 for two years from January 2013.
Annual residential property tax on a sliding scale for non-dom UK residents in homes worth more than £2m.
Stamp duty of 15 per cent on the purchase of property worth over £2m by foreign individuals using corporate structures, in addition to capital gains tax.
Clarification of tax arrangements for decommissioning oil wells, encouraging firms to sell old North Sea oilfields to small companies and invest in new capacity.