The WYSIWYG Draft Finance Bill sets the agenda for spring-cleaning in 2012.

The Draft Finance Bill has the potential to develop from a draught into a full-blown wind of change that could sweep away a number of obstacles to enterprise and growth. In this sense it appears that April 2012 should see a spring clean that will not only clear out obsolete oddities identified by the Office of Tax Simplification but also introduce worthwhile reforms that promise to remove obstacles to the UK’s international competitiveness. We are cautiously optimistic that what we see is truly what we will get.  Read more....

In detail

Foreign currency bank accounts – Exemption from CGT
Where individuals, trustees or personal representatives hold a bank account in a foreign currency they are potentially subject to capital gains each time a withdrawal is made from the account. Calculating the gains (or losses) can be complex and time consuming and, because of this, the Government proposes to exempt such gains from CGT from 6 April 2012.

SDLT schemes: disclosure obligations
The DOTAS rules are to be extended to ensure more information is available to HMRC regarding the extent of the use of SDLT avoidance arrangements. Whilst HMRC are known to have a large number of cases awaiting litigation , these changes will undoubtedly lead to increasing scrutiny of transactions: including many that have already been completed.

UK and Switzerland tax agreement
The government is seeking to give effect to the UK / Swiss tax agreement signed in October 2011.  The agreement demonstrates HMRC’s desire to show that there is ‘no hiding place’ for tax evaders.  UK individuals with Swiss investments will have to disclose or suffer a one-off levy and withholding taxes.

Improvements to the R&D tax regime
Draft legislation published today proposes further improvements to the R&D tax regime for SME companies. Small companies in particular should benefit from higher rates of relief and simplification of the qualifying criteria effective from April 2012. The Government also intends to consult on the introduction of a new ‘above the line’ tax credit for large companies at the next Budget.

Reform of taxation of non-domiciled individuals
As announced in Budget 2011 and outlined in the June 2011 consultation document, a number of changes are to be made to the taxation of non domiciled individuals who claim the remittance basis.  While some of these are to be welcomed, one of them may well tip the balance in deciding whether to leave the UK.

Enterprise Zones – First year allowances
As expected, 100% first year allowances will apply to expenditure by companies on plant and machinery to be used in certain designated areas within Enterprise Zones from 1 April 2012. As well as geographic restrictions on the availability of allowances, there will be exclusions for certain asset classes and certain industries.

Patent Box for companies
The Patent Box will allow companies to elect to apply a 10% rate of corporation tax from 1April 2013 to all profits attributable to qualifying patents, whether paid separately as royalties or embedded in the sales price of products. Other non-qualifying profits in these companies will continue to be taxed at the main rate.

VAT: Online Registration / removal of VAT registration threshold for non-UK established businesses
In line with the Government’s digital agenda, HM Revenue & Customs will introduce an enhanced and streamlined service for VAT registration, deregistration and variations of business details. The online platform will be available from October 2012.  With effect from 1 December 2012, the registration threshold for non-UK established businesses will be removed requiring businesses without a UK establishment who make taxable supplies in the UK to register for UK VAT.

Enhancement to EIS and VCT schemes
As expected, the draft Finance Bill 2012 enhances the EIS and VCT schemes by increasing the funds allowed to be raised under these schemes  and the size restrictions on qualifying companies. However it also attempts to refocus the schemes with some unfortunate consequences.

Capital allowances on fixtures
Legislation will be introduced to effectively force the seller of a property to include a claim for capital allowances on fixtures in a tax return before they sell those properties if the buyer is to be able to claim any allowances. The buyer and seller will also have to agree the value to be placed on those fixtures for tax purposes at the time of sale.

Controlled Foreign Companies - Nearly there?
Far from the draft CFC legislation being on the home stretch after detailed consultation spanning the previous three years, there have in fact been significant changes to even those in the June 2011 consultation document.   In summary, the revised proposals appear to show that the Government is listening by attempting to simplify the exemptions and make the revised legislation more business friendly.

OTS makes valuable but slow progress
36 out of 1042 reliefs may not sound like a lot but the majority of tax reliefs are valuable and none should be abolished without proper consideration. So far the Office of Tax Simplification (OTS) has picked mainly low hanging fruit but eventually a simpler, slimmer tax system is going to emerge.

Seed Enterprise Investment Scheme (SEIS)
This is a scheme to encourage investment in very early stage small companies. Investors, including directors, can receive initial tax relief of 50% on investments up to £100,000 and CGT exemption for any gains on the SEIS shares. For 2012-2013 only, a CGT exemption will be offered in respect of gains realised on the disposal of assets that are invested through SEIS in the same year.

VAT: Cost sharing exemption
Organisations such as charities, universities, colleges, housing associations, finance and insurance institutions may benefit from a much needed cash boost as a result of the news that the VAT cost sharing exemption will be implemented into UK legislation without the limitations in its scope as previously proposed

Real Estate Investment Trusts (REITs)
From the date of Royal Assent to Finance Act 2012, the charge of 2% of the market value of assets on entry to the REIT regime is to be abolished. Alongside other relaxations of the conditions, companies traded on AIM and certain other platforms will be permitted to become REITs.

Distribution of assets and liabilities
Changes are to be made following the deliberations of a joint working group with interested tax professionals to ensure that the tax treatment of transfers of assets and liabilities between UK resident companies is the same as that which applies to transfers between UK resident and non-UK resident companies.

NHS bodies: SDLT reliefs
A technical measure that re-enacts and updates an existing stamp duty land tax (SDLT) relief for acquisitions of interests in land by certain NHS bodies. It updates the list of bodies to which the relief applies and repeals the existing SDLT relief and its equivalent stamp duty relief, which is obsolete.

Machines Games Duty
Legislation will be introduced in Finance Bill 2012 to establish Machine Games Duty and, where the new Machines Games.

UK Oil & Gas Companies gains
Changes are proposed to the scope of the supplementary corporation tax charge on ring fenced profits of UK oil and gas companies, to ensure that it cannot be avoided by electing to transfer capital gains to other group companies outside the ring fence.

Reduced Inheritance Tax for Charitable Legacies
As expected draft legislation to provide for a lower 36% rate of inheritance tax (IHT) when at least 10% of an estate is left to charity has been published.  This is simpler than many feared and HMRC appear to have been listened to the comments of many charities and advisers.

The Impact on Professional Practices
The impact of the Finance Bill 2012 tax changes on professional practices themselves will generally be fairly modest.  However, some of the detailed changes in relation to Enterprise Investment Schemes and Venture Capital Trusts will be of interest to partners in a personal capacity.  International firms will need to be aware of developments in connection with the taxation of non domiciled individuals, and also the statutory tax residence test which has been postponed for 12 months.

Gifts of Pre-eminent Objects to the Nation
As part of Government’s drive to encourage philanthropy, draft legislation on a scheme to allow individuals and companies to settle tax liabilities by making gifts of pre-eminent objects and works of art to the nation has been published. 

Worldwide Debt Cap – More Flexibility?!
Since being introduced, criticism has been levelled at the Worldwide Debt Cap rules because of their complexity and the ambiguity that has been encountered in practice.  These rules target excessive intra-group debt being borne by UK companies and are being amended to provide groups with more flexibility and clarity in applying them.

SA Donate and in year repayments
As previously announced draft clauses to abolish SA Donate and to put on a statutory basis HMRC’s practice of allowing charities and CASCs to claim tax repayments during the tax year have been published.