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Budget
PN 3
21 March 2007
The Chancellor today announced a series of measures to ensure that all individuals and companies pay their fair share of tax. The package includes a strengthening of the disclosure regime, and the use of targeted anti-avoidance measures as a proportionate response to those who seek to avoid paying their fair share. These measures support the provision of public services whilst protecting the UK's competitive business environment.
Many of these measures have been informed by the disclosure rules introduced in Finance Act 2004, which allow HM Revenue and Customs (HMRC) to identify and target specific risks to the tax system. Measures to respond to the threat posed to the public finances by fraud are also announced today.
The Government announced at Pre-Budget Report 2006 action to tackle Managed Service Company (MSC) schemes that are used to avoid paying employed levels of tax and NICs. From 6th April 2007 for income tax, and - subject to Finance Bill Royal Assent - from 6th August 2007 for National Insurance, income received by workers in MSCs in relation to services provided through the MSC will be subject to employed levels of tax and NICs. The Government will also address the problem of MSCs escaping payment of tax and NICs due by allowing the recovery of these debts from appropriate third parties.
The consultation on the draft legislation showed widespread support for action to tackle MSCs. The Government is responding to key concerns raised, as described in the summary of consultation responses published today (Tackling Managed Service Companies: summary of consultation responses) by amending the definition of an MSC to give greater certainty; narrowing the scope of the debt transfer provision; and delaying its application to certain third parties.
Details of the measure are set out in Budget note 46.
Budget 2004 introduced a disclosure regime that has enabled the Government to respond to avoidance more swiftly and in a more targeted way. In order to ensure that the regime functions consistently, the Government is introducing new powers for HMRC to investigate a scheme where there are reasonable grounds to believe that a promoter has failed to comply with its statutory disclosure obligations.
The Government has consulted on the draft legislation and will publish the final legislation in this year's Finance Bill.
The Government today announced a measure to prevent avoidance of Insurance Premium Tax (IPT). With effect from 22 March, the IPT definition of "premium" is amended in order to clarify that it includes payments for a right to require an insurer to provide insurance cover.
Details of the measure are set out in Budget note 31
Legislation will be introduced in Finance Bill 2007 to prevent companies buying the trading losses of corporate members of Lloyd's who are leaving the market and with which they have no previous economic connection.
This measure will have effect for changes in the ownership of the loss-making company taking place on or after Budget Day.
Details of the measure are set out in Budget note 9.
The Government announced a measure, effective from today, to confirm that employers cannot sidestep the existing EBT anti-avoidance provisions by declaring a trust over assets that they already control. It also confirms that any other action which has the effect of creating or enhancing the value of employee benefit contributions are subject to the same anti-avoidance provisions.
The effect of the measure will be to prevent an employer from obtaining a deduction for tax purposes in respect of any such contributions until they are paid to employees in a form on which income tax and NIC are due.
Details of the measure are set out in Budget note 38.
Legislation will be introduced in Finance Bill 2007 to impose a tax charge where financing arrangements are used by life insurance companies to generate untaxed profits. This measure will be effective for periods of account beginning on or after 1 January 2007
Details of the measure are set out in Budget note 33.
A new accounts based regime for taxing repo agreements for companies will be introduced to replace the current mechanical rules. The new regime will take effect from a date to be determined by Treasury Order, following further consultation with business and representative bodies on the detail.
Details of the measure are set out in Budget note 14.
The Government today announced a measure, effective from today, that tackles schemes that use life insurance policies and commission arrangements to avoid tax on investment income. The schemes are typically marketed by advisers to individuals with significant sums to invest; this measure targets the larger premium, relatively short-term policies used in such schemes.
Details of the measure are set out in Budget Note 35.
Measures to counter avoidance of corporation tax on capital gains were announced today. These include:
Measures to counter schemes that use financial products to avoid corporation tax were announced by the Government, and with one exception became effective, on 6 March 2007. Schemes included:
The Government also introduced various measures (effective from 6 March 2007) to clarify the scope of the rules on structured financing arrangements.
A measure to counter the avoidance of tax through the use of sideways loss relief was announced on 2 March 2007, with effect from that date.
The Government today announced steps to modernise the Joint & Several Liability measure introduced in 2003, to counter potential mutations in Missing Trader Intra Community VAT Fraud:
These are proportionate steps, which compliment the introduction of the reverse charge accounting procedure announced on Monday 19 March 2007 and aimed solely at those who choose to profit from fraud. This demonstrates that the Government is committed to tackling this organised criminal attack on the VAT system.
Details of the measure are set out in Budget note 60.
The Government today announced that excise duty relief for small non-commercial consignments will be repealed. This follows a recent judgement by the European Court of Justice that makes it clear that current reliefs are unlawful. This will mean that all alcohol and tobacco sent by post from abroad will be liable to UK excise duty.
Details of the measure are set out in Budget note 77.
The Government today announced that it will clarify guidance on the information businesses need to provide to support claims for drawback of excise duty, with effect from 1 April 2007. This will ensure that HMRC can verify that goods are duty paid and eligible for drawback. HMRC are publishing responses to the consultation document, Reform of the Excise Duty Drawback System, alongside the Budget.
The Government today announced the introduction of a covert security mark on packs of cigarettes and hand rolling tobacco to tackle the threat from counterfeit tobacco. The Government has been working closely with the tobacco industry and tobacco manufacturers will be implementing this scheme on a voluntary basis during the coming year.
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