Autumn Budget 2017 All you need to know NOVEMBER 2017

Autumn Budget 2017 All you need to know NOVEMBER 2017

ALL YOU NEED TO KNOW AUTUMN BUDGET 2017 PAGE 2 EXECUTIVE SUMMARY executive summary Mr Hammond had warned us in advance to expect a balanced Autumn Budget and he reaffirmed this would be his approach at the beginning of his second 2017 Budget speech. He announced a number of investments for housing, other UK infrastructure and the NHS, with an additional financial commitment for Brexit, without being explicit on where the money will be spent for the latter. The expected, but welcome, reform of the universal credit system will take further investment. The balance in this context will come from a number of tax changes introduced, or at least announced, at this stage. The tax cuts were primarily focused toward R&D investment, knowledge intensive companies via the Enterprise Investment Scheme and reduced SDLT for first-time buyers. As you will see, there were a number of other measures announced, including changes to the taxation of property for non-residents, the taxation of certain royalty payments made to nil or low tax jurisdictions, off-payroll working reform and joint and several VAT liability provisions for online marketplaces and their vendors. Together with a package of changes for tackling anti-avoidance this will provide the additional tax take needed. However, a number of measures announced are still subject to debate and change with over 20 consultations, calls for change and other consultative documents tabled, with the majority of those scheduled for release in 2018. Whether the changes announced will ensure that the UK is fit for the future only time will tell. Our analysis will help you draw your own conclusions. I suspect there will be more to come in due course. JONATHAN HICKMAN TAX PARTNER CORPORATE AND M&A

ALL YOU NEED TO KNOW AUTUMN BUDGET 2017 PAGE 3 01 CORPORATE AND BUSINESS TAXES corporate and business taxes BOOST FOR EIS AND VCT INVESTMENT IN KNOWLEDGE-INTENSIVE COMPANIES Welcome changes are being introduced from 6 April 2018 for knowledge-intensive companies (KICs). The amount these companies can raise from the Enterprise Investment Scheme (EIS) and from Venture Capital Trusts (VCTs) will be doubled to 10m per year. The rules around the maximum age of a company to be eligible for EIS and VCT investment are also being relaxed. KICs will be able to elect to measure their age from the point at which their turnover reached 200,000 per year, rather than from their first commercial sale. Additionally, the amount individuals can invest each year in EIS companies has been doubled to 2m per year, provided they invest in at least 1m in one or more KICs. These changes should help boost EIS and VCT investment in innovative, high-tech, researchdriven companies. To ensure entrepreneurial companies with high-growth potential benefit most from venture capital tax reliefs, a new risk to capital condition will be introduced, with the aim of disqualifying companies where there is low risk to the investors capital. There are also some technical changes to rules for investment by VCTs and rules for relevant investments for EIS and VCT purposes. Following the Patient Capital Review, there were concerns that the EIS and VCT schemes would face major restrictions. Cuts in the rate of relief, an extension of the qualifying period to five years and more excluded trades were all rumoured to be in the pipeline. However, changes are mostly positive and should help the UK s innovation sector raise the equity finance it needs to grow.

ALL YOU NEED TO KNOW AUTUMN BUDGET 2017 PAGE 4 NON-RESIDENT COMPANIES TO PAY CORPORATION TAX ON UK RENTAL INCOME AND PROPERTY GAINS corporate and business taxes Non-resident companies will benefit from a lower tax rate from April 2020 but are likely to be chargeable to tax on higher levels of profit. Corporation tax (which will fall to 17% from April 2020) will apply to profits currently chargeable to income tax or non-resident capital gains tax (NRCGT). It is also proposed to bring gains on commercial property into the charge to tax for the first time and extend the charge to tax to gains on residential property. Gains made on the disposal of shares in companies holding properties could also be brought within the charge to tax. CURRENT POSITION From April 2020, non-resident companies will become chargeable to corporation tax. Currently such companies are chargeable to income tax at 20% on their rental profits. Non-resident companies that do not have diverse ownership are also chargeable to capital gains tax (CGT) on gains from the sale of residential property. CORPORATION TAX IMPLICATIONS FOR RENTAL INCOME The rental profits of non-resident companies will be calculated using corporation tax principles rather than income tax principles. New rules restricting the use of brought-forward losses and capping deductions for interest charges (broadly to 30% of EBITDA) will therefore apply. Taxable rental profits may be higher under the corporation tax regime than they would have been under income tax rules. EXTENSION OF CHARGE TO TAX ON GAINS ON DISPOSAL OF PROPERTIES Alongside the Budget, a consultation document has been published proposing that the charge to tax on gains will be extended. From April 2019, gains made by non-residents on any UK property, including commercial property and residential property owned by diversely held companies will be chargeable to UK tax. Properties not already chargeable to tax will be rebased to market value in April 2019 for this purpose. Some exemptions will still be available to entities which would not be chargeable to corporation tax if they were UK resident eg pension funds. INDIRECT DISPOSALS OF PROPERTIES NOW TO BE TAXED In some cases, disposals of UK investment properties take place through a sale of the corporate entity owning the property rather than through a sale of the property itself. Where nonresident companies sell shares in such companies, in most cases they are not currently within the charge to UK tax. It is proposed that from April 2019, gains on the disposal of shares which derive their value from UK property investments by non-residents may be charged to UK tax where certain conditions are met. The two main conditions for this to apply would be: 1. Gains on sales of shares where the seller holds, or has held at some point in the last five years, an interest of 25% or more in the company. Interests held by related parties would be aggregated for this purpose. 2. Companies where, at the date of disposal, at least 75% of the market value of the gross assets of the company represents UK land. No discount will be permitted in this calculation for outstanding liabilities, eg debt secured on the property. For this purpose, assets will include: -- A shareholding in a company deriving its value directly or indirectly from land -- A partnership interest deriving its value directly or indirectly from land -- An interest in settled property deriving its value directly or indirectly from land -- Any option, consent or embargo affecting the disposition of land. In calculating the gain on the disposal of the shares, the cost of the shares would be rebased to the market value in April 2019. Anti-forestalling measures taking effect from 22 November 2017 are also proposed. These would stop any attempt to circumvent the charge undertaken prior to 2019, in particular by nonresidents seeking protection under beneficial double tax treaties.

ALL YOU NEED TO KNOW AUTUMN BUDGET 2017 PAGE 5 corporate and business taxes BUSINESS RATES Reliefs will be enhanced and extended for business rates which will help alleviate some of the hardship caused by the latest revaluation of business property. However, revaluations for business rates will become more frequent and so business owners may face higher charges in future periods. CHANGES TO RELIEFS The key change announced was that from 1 April 2018 the indexation of business rates will be based on Consumer Price Index (CPI) as a measure of inflation rather than Retail Price Index (RPI). This was already planned but has been brought forward. In an unusual step, retrospective legislation will be enacted to end the so-called staircase tax where different business rates apply depending on whether office staircases are communal or private. Affected businesses will be able to request that bills are recalculated, with backdating to April 2010. A 1,000 business rate discount for pubs with a rateable value of up to 100,000 will be extended for a further year from 1 April 2018. FREQUENCY OF REVALUATIONS The next revaluation for business rates is due in 2022. Thereafter, revaluations will take place every three years. Businesses will need to provide information to the Valuation Office on who is responsible for business rates and characteristics of the property including its commercial use and the rent paid. Implementation of this measure will be subject to consultation in spring 2018. CORPORATE TAX AND THE DIGITAL ECONOMY A position paper has been published which sets out the Government s view on the challenges posed by the digital economy for the corporate tax system and outlines its preferred solutions. This follows on from the OECD Base Erosion and Profits Shifting project to tackle multinational tax avoidance and the introduction of the Diverted Profits Tax in 2015. The Government considers that the international tax framework still allows for multinational tax planning and that the changing nature of economies in the digital age and the way digital businesses operate creates new challenges. The Government s principle is that a multinational group s profits should be taxed in the countries where it generates value. It is seeking reforms to ensure that the value created by the participation of users in certain digital businesses (even if the businesses have no physical presence) should be recognised in determining where profits should be taxed. Reforms to the international tax framework can only be achieved through continued work with the OECD (through the OECD Digital Task Force on the Digital Economy) and other countries. Following consultation, the Government will take interim action to tax multinational groups which hold international property offshore, by extending the scope of withholding tax obligations to royalty payments and payments for certain other rights made to nil or low tax jurisdictions in connection with sales to UK customers. This change will take effect from 1 April 2019 and is expected to raise 800m over the first four years. Responses to the consultation should be submitted by 31 January 2018.

ALL YOU NEED TO KNOW AUTUMN BUDGET 2017 PAGE 6 corporate and business taxes DOUBLE TAXATION RELIEF AND OVERSEAS BRANCH COMPANY LOSSES The double taxation relief available to UK resident companies as a result of paying foreign tax due to an overseas branch is restricted. This will apply when the losses of the overseas branch have been offset against profits of another entity in the overseas jurisdiction of the branch in the same or earlier accounting periods. Companies will therefore be required to track the overseas treatment of losses of their overseas branches for double taxation relief purposes. This measure is effective from 22 November 2017 and ensures that a company does not get tax relief twice for the same loss. CORPORATE INTEREST RESTRICTION Legislation will be introduced in Finance Bill 2017-18 and Finance Bill 2018-19 to make technical amendments to the rules. The changes cover the following areas: Altering how derivatives are taken into account for financial trades other than banks Ensuring R&D above the line credits do not contribute to an interest restriction and ensuring this is aligned with R&D relief Public infrastructure exemptions: -- Allowing insignificant levels of non-taxable income -- Enabling companies to make elections during, rather than before, the relevant period -- Removing deemed elections for purchasers where a transfer of assets takes place -- Addressing potential to benefit from financing conduits Ensuring the group definition is aligned with accounting standards Aligning amendment requirements for corporation tax returns with corporate interest restriction returns. Some of these amendments are treated as having effect from 1 April 2017 when the Corporate Interest Restriction (CIR) rules commenced. The remainder of the amendments will take effect from 1 January 2018. Given the CIR was subject to a lengthy consultation period and numerous drafts, there may be some surprise that amendments to the rules were announced less than a week after they entered the statute books. The majority of the changes are to correct minor drafting errors or address specific scenarios where an unintended result has occurred. For example, it was always intended that R&D claims should not adversely affect groups and that the group definition would be aligned with accounting standards. Changes to the public infrastructure exemption will make this aspect of the rules fairer and more logical to apply. CHANGES TO ANTI-HYBRID RULES A few clarifications will be made to the hybrid and other mismatches regime. Previously introduced in Finance Act 2016, the regime is designed to tackle mismatches in tax treatment for entities, permanent establishments and financial instruments. The measure introduces a number of technical changes. These have been identified after extensive, informal consultation with stakeholders on the regime s practical impact and the extent to which specific rules and conditions might cause results contrary to the original intentions. Consequently, more groups will find themselves caught by the hybrid mismatch rules. Most of the changes will be effective from 1 January 2017, with the remaining provisions taking effect from 1 January 2018.

ALL YOU NEED TO KNOW AUTUMN BUDGET 2017 PAGE 7 corporate and business taxes BANK LEVY RE-SCOPE As announced in Summer Budget 2015 and confirmed in Autumn Statement 2016, the Government will change the bank levy s scope so that UK-headquartered banks will only be levied on their UK balance sheet liabilities. Minor administrative changes will also be made. Following consultation, the draft legislation has also been amended to include technical changes to the bank levy calculation. REDUCTION IN SCOPE The changes to the bank levy s scope will have effect for chargeable periods ending on and after 1 January 2021. The bank levy will then be chargeable only on equity and liabilities recognised on the UK balance sheets of banks and building societies. This reduction in scope is intended to reflect what the Government sees as significant developments in both overseas regulation and resolution planning. The potential risk to the UK of overseas banking operations has arguably been materially reduced since the introduction of the levy in 2011. Although the bank levy taxable base has been reduced, a new 8% corporation tax surcharge has already been in force since 1 January 2016. The changes also reduce the amount of chargeable liabilities where a UK bank holds certain loss-absorbing instruments issued by an overseas subsidiary. The draft legislation provides that the amounts by which liabilities are to be reduced will be equivalent to a reduction at the lower rate of bank levy, which is half the rate chargeable on short-term liabilities. ADMINISTRATIVE AMENDMENTS Finally, various minor amendments have been proposed. These include dealing with the process for nomination of a responsible member for the levy and replacing references to UK GAAP and US GAAP with references to International Accounting Standards. MORE SUPPORT FOR COMPANIES INVESTING IN INTELLECTUAL PROPERTY? In 2018, the Government will consult on whether there is an economic case for targeted changes to the taxation of intangible fixed assets to better support UK companies investing in intellectual property. CHARGEABLE AMOUNTS FOR ATED TO INCREASE BY 3% The annual chargeable amounts for the annual tax on enveloped dwellings (ATED) will rise by 3%. The new charges will apply to the 2018/19 chargeable period, which begins on 1 April 2018. ANTI-AVOIDANCE EXTENDED FOR DEPRECIATORY TRANSACTIONS From 22 November 2017, companies must adjust for all depreciatory transactions when claiming a capital loss on the disposal of shares in a group company. Previously there was only a need to look back six years to identify below market value intra-group transfers of assets and other similar transactions. INCREASE IN R&D RELIEF From 1 January 2018, the rate of the Research & Development expenditure credit (RDEC) will increase from 11% to 12%, primarily affecting large companies. Furthermore, the Government will introduce a new Advanced Clearance Service for RDEC claims. INDEXATION ALLOWANCE FROZEN The corporate indexation allowance will be frozen from 1 January 2018. No relief will be available for inflation accruing after this date in calculating chargeable gains made by companies. The indexation allowance for assets disposed on or after 1 January 2018 will therefore be calculated up to 31 December 2017.

ALL YOU NEED TO KNOW AUTUMN BUDGET 2017 PAGE 8 corporate and business taxes TRANSFERABLE TAX HISTORY FOR OIL AND GAS COMPANIES Oil and gas companies will be able to transfer the tax history of late life oil and gas assets when selling them after 1 November 2018. This is intended to ensure that older fields remain financially viable for longer by allowing companies to offset decommissioning costs. POSTPONEMENT OF CAPITAL GAINS ON DISINCORPORATION RELIEF Finance Bill 2017-18 will remove an unintended tax charge that can arise when a new holding company is inserted directly above an overseas company to which a UK company has previously transferred the trade and assets of a foreign branch in return for shares. The measure inserts a new provision to ensure that the no disposal treatment for share exchanges applies in determining whether there has been a disposal which would end the postponement of tax. This will apply notwithstanding the provisions in the substantial shareholding exemption rules that otherwise take priority. The legislation will affect disposals on and after 22 November 2017. FIRST YEAR ALLOWANCES EXTENDED FOR ZERO-EMISSION GOODS VEHICLES AND GAS REFUELLING EQUIPMENT First year allowances for zero-emission goods vehicles and gas refuelling equipment have been extended for a further three years to 31 March/ 5 April 2021.

ALL YOU NEED TO KNOW AUTUMN BUDGET 2017 PAGE 9 02 PERSONAL TAXES INCREASES TO TAX RATES AND ALLOWANCES FOR 2018/19 personal taxes HIGHER RATE TAXPAYERS UP TO 340 BETTER OFF For the tax year 2018/19 the personal allowance will increase by 350 to 11,850 and the basic rate band will increase by 1,000 to 34,500, meaning individuals will only pay 40% tax once their income surpasses 46,350. These changes will result in a tax saving of up to 70 for basic rate taxpayers, 340 for higher rate taxpayers and 200 for 45% taxpayers. Income tax rates are unchanged. The Government has reaffirmed its manifesto commitment to increase the amount at which 40% tax becomes payable to 50,000 by the end of this Parliament. CGT ANNUAL EXEMPTION RISES The CGT annual exemption will increase by 400 for 2018/19. From 6 April 2018 the first 11,700 of gains will, for most individuals, be exempt from CGT. The maximum exemption for most trustees will increase by 200 to 5,850. The rates of CGT will not change. ARE THERE CHANGES AHEAD FOR RENT-A-ROOM RELIEF? Currently an individual who rents out a room in their own home to a lodger can claim the relief so that they do not pay any tax on rents of up to 7,500 per year. The Government would like to establish whether the relief is being used for its original purpose (to support longer-term lettings) so has published a call for evidence on how it is being used in practice.

ALL YOU NEED TO KNOW AUTUMN BUDGET 2017 PAGE 10 personal taxes NON-UK DOMICILES AND TRUSTS Non-UK domiciled individuals may be affected by a number of changes introduced in Finance (No. 2) Act 2017 (which received Royal Assent on 16 November 2017) but no further direct changes were announced in the Budget. The key changes to the non-dom rules which are now effective from 6 April 2017 are: The introduction of the deemed domicile rule for all tax purposes for those who have lived in the UK for 15 of the last 20 tax years The ability to rebase foreign sited assets for CGT purposes for those deemed domiciled individuals Specific measures for those born in the UK with a UK domicile of origin to treat them as UK domiciled The ability to cleanse mixed funds for all non-doms who have previously claimed the remittance basis of assessment Certain protections for offshore trusts as well as tainting provisions The introduction of look through inheritance tax rules where UK residential property is held within a corporate, partnership or trust structure. OFFSHORE TRUSTS A number of further proposals, such as rules to tax payments from offshore trusts that are routed through an overseas beneficiary (or remittance basis user) to a UK resident individual, are expected to take effect from 6 April 2018. Draft legislation is expected to be published on 1 December in Finance Bill 2017-18. While this should ultimately provide more clarity, unfortunately, it adds a further layer of complexity for the 2017/18 tax year as trustees and their beneficiaries will now need to take into account two sets of rules when deciding whether and when to make a distribution or take benefits from an offshore trust. NON-RESIDENT GAINS ON UK IMMOVABLE PROPERTY The Government announced that from April 2019 tax will be charged on gains made by non-residents on the disposal of all types of UK immovable property (including commercial property), extending existing rules that apply only to residential property. Since April 2015, NRCGT applies to gains accruing on disposals of UK residential property interests by non-resident individuals, trustees and personal representatives, and by certain companies. The measure announced in the Budget expands the scope of the UK s tax base to disposals of immovable property by non-residents in two key ways: 1. All non-residents who make gains on disposals of direct interests in UK land will be chargeable 2. Non-resident gains made via indirect disposals of UK land will also be chargeable. These measures will have a wide reaching impact for both individual and corporate non-residents. However, the Government has announced that property values will rebased at April 2019 so that only the gains attributable to changes in value from 1 April 2019 (for companies) or 6 April 2019 (for other persons) will be chargeable. The overall aim of the policy is that any gain made by a non-resident on a disposal of UK immovable property will be chargeable to UK tax. The Government has pointed out that UK tax legislation is out of sync with most other major jurisdictions who already tax the disposal of real property situated in their country. Although non-residents have been getting to grips with the regime introduced in April 2015 for disposals of UK residential property, the impact of these rules to tax commercial property will be far reaching and we expect there to be significant lobbying during the consultation on these rules.

ALL YOU NEED TO KNOW AUTUMN BUDGET 2017 PAGE 11 personal taxes FURTHER PERSONAL TAX CHANGES POST DEATH MARRIAGE ALLOWANCE CLAIMS The marriage allowance rules have been amended to allow widows and widowers to submit claims on behalf of their deceased spouses and civil partners. The claim may be backdated by up to four years. The marriage allowance lets individuals transfer 10% of their unused annual allowance to their husband, wife or civil partner, where the recipient is a basic rate taxpayer. For 2017/18 the relief is worth up to 230. PENSION LIFETIME ALLOWANCE RISES Despite speculation over the possible restriction of pension tax reliefs, the Chancellor confirmed that the lifetime allowance (the maximum amount individuals can put into their pension pots), will increase in line with CPI to 1,030,000 for 2018/19. The allowance has decreased significantly over the last few years from 1.8m in 2010/11 to 1m in the current tax year. Individuals have been able to submit claims to protect themselves against these reductions. Exceeding the lifetime allowance can lead to a tax charge of up to 55% on the excess when withdrawals are made. DELAY TO 30-DAY TIME LIMIT FOR PAYING CGT The proposed change to the due date for payment of CGT on the sale of UK residential property has been put back by one year. From April 2020, CGT will be payable to HMRC within 30 days of completion. Currently, CGT is due by 31 January following the tax year of disposal. The change will result in the due date for CGT being brought forward by up to 635 days. The 30-day time limit already applies to non-resident individuals paying CGT on the sale of UK residential property. CARRIED INTEREST TAX REFORM The removal of a transitional rule for CGT on carried interest billed as no longer required may increase the effective rate of tax suffered on the receipt of carried interest amounts in certain cases. This is most likely to apply where disposals giving rise to carried interest occurred prior to 8 July 2015 and amounts have been held in escrow until 22 November 2017 or later. A major change was made to the CGT treatment of carried interest in the July 2015 Budget. The main policy aim of this change was that CGT should be charged on the full amount received as carried interest without the benefit of the so-called base cost shift. The impact was an increase in the effective tax rate for recipients of carried interest. The July 2015 rules included a transitional provision which took carried interest arising on or after 8 July 2015 outside the new regime when it arose in respect of disposals of assets before that date. Disposals before 8 July 2015 would have been taxed under the previous rules. The transitional provision allowed, for instance, amounts which had been placed in escrow before 8 July 2015 not to be taxed under the new rules when received on or after that date; they would already have been taxed under the previous rules. The change announced by the Chancellor will remove the transitional provision for amounts of carried interest arising on or after 22 November 2017. Where amounts arise now but relate to disposals before 8 July 2015, the July 2015 rules will apply, with credit for any tax previously paid up to the CGT charged now. The main impact of this will be that there will be no benefit of base cost shift for the amount of carried interest now arising. This will likely result in some further tax payable when the carried interest arises where under the transitional provision no further tax would have been expected. The amount of further tax payable will depend on the exact characteristics of the amounts making up the carried interest.

ALL YOU NEED TO KNOW AUTUMN BUDGET 2017 PAGE 12 03 EMPLOYMENT TAXES employment taxes OFF-PAYROLL WORKING REFORM: EXTENSION TO THE PRIVATE SECTOR The Government will consult on the extension of off-payroll working rules to the private sector. The success of the intermediaries legislation (commonly called IR35) has prompted the possible extension but the Government is keen to understand the impact on businesses and individuals. As widely anticipated, there will be a consultation on extending the off-payroll working rules to the private sector. IR35 ensures that an individual who provides their services via an intermediary body (usually a company) but is in effect working as an employee, is taxed as an employee. The issue of non-compliance with IR35 legislation has been an area of concern for the Government since it was introduced in 2000. The Government will build proposals for extending the public sector reforms to the private sector and consult on them during 2018. The Government has drawn on the experiences of the public sector reforms which came into effect from 6 April 2017, on external research due to be published in early 2018 as well as on commentaries such as Good work: the Taylor review of modern working practices. The potential for extending the off-payroll working rules to cover private sector arrangements was clear from the day the public sector reforms were introduced in April 2017. The Budget documents recognise the need to understand the views of the businesses and individuals who would potentially be affected by any changes. All forms of off-payroll labour have been subject to a wide array of anti-avoidance legislation in recent years affecting business of all sizes and in all sectors. Great care will be needed to ensure full compliance with the complex tax rules surrounding the use of off-payroll labour.

ALL YOU NEED TO KNOW AUTUMN BUDGET 2017 PAGE 13 employment taxes REFORMS TO BENEFITS IN KIND FOR CARS AND VANS Standard amendments to the van and fuel benefit charges have been announced. However the main emphasis is on incentivising employees to move towards vehicles with lower emissions. CALCULATING THE BENEFIT IN KIND The Budget brings increases to the benefit in kind charges for both vans and cars: Fuel benefit charges will increase by RPI for 2018/19 onwards. The multiplier for the car fuel benefit charge will rise to 23,400 whilst for vans, the charge will move to 633 The van benefit charge will also increase by RPI from 6 April 2018 to 3,350. For the car benefit charge, the Government has clarified which CO2 figures compatible with the existing test (the New European Driving Cycle test) must be used until April 2020. The current legislation is unclear and has created uncertainty following the introduction of a new emissions test in September 2017. ENCOURAGING A MOVE FROM DIESEL TO ELECTRIC CARS As part of plans to improve air quality, the Government announced two measures to incentivise the use of electric cars. First, there will be no benefit in kind charge if employers provide workplace electric charging points for electric or hybrid vehicles for employees. This will apply from April 2018 and is part of the Government s wider plans to invest in an electric charging infrastructure to support the transition to zero emission vehicles. The second measure is a rise in the diesel supplement used in company car and car fuel benefit calculations. The supplement will increase from 3% to 4% from April 2018 for diesel cars which do not meet the Real Driving Emissions Step 2 (RDE2) standards. This change will not affect diesel vans and the diesel supplement does not apply to hybrid cars. The diesel supplement will also be removed entirely for cars which meet the RDE2 standard. Employers may want to use these changes as an opportunity to consider the types of cars on offer to employees, especially in light of the new optional remuneration arrangement rules. FURTHER EMPLOYMENT TAX CHANGES EMPLOYMENT STATUS The Government will launch an employment status consultation in 2018. Employment status has long been a complex and controversial area of tax and employment law. The aim will be to make the employment status test for both employment rights and tax clearer. NIC BILL DELAYED The Government has announced a 12-month delay in the NIC Bill which will affect the self-employed, employers making termination payments to employees and sportsmen and women who have a testimonial. Measures which were to be introduced on 6 April 2018 will now not take effect until 6 April 2019. TAX RELIEF FOR SELF-FUNDED TRAINING The Government will publish a response on 1 December to its initial call for evidence on tax relief for self-funded training and there will be a formal consultation in 2018. Tax relief can be available for employees and self-employed workers incurring work related training costs.

ALL YOU NEED TO KNOW AUTUMN BUDGET 2017 PAGE 14 04 INDIRECT TAXES THREE MEASURES EXTENDING VAT LIABILITY OF ONLINE MARKETPLACES indirect taxes The Government has proposed three measures that will further extend the joint and several liability provisions applying to online marketplaces, such as Amazon or ebay. The new provisions, which are designed to make it more difficult for vendors to evade VAT on goods sold through those marketplaces, will apply from the date of Royal Assent in 2018. The current provisions allow HMRC to make an online marketplace jointly and severally liable for VAT on sales of goods located in the UK that are made by a business established outside the UK. 01 The first new provision will extend this liability to include a UK business selling UK-based goods on the marketplace, but will only apply if HMRC has served a notice on the marketplace about the UK business concerned. 02 The second change applies to non-uk businesses. If the online marketplace knew, or should have known, that the business should have been registered and accounting for UK VAT, it will be jointly liable with that business. A nil VAT registration threshold applies to non-uk businesses selling goods located in the UK, so this change will apply to all non-uk businesses selling goods that are stored in the UK, unless the goods are not liable to VAT in the UK. 03 The third change requires online marketplaces to verify a business s VAT registration and to ensure that this VAT number is then displayed online. Although this change will apply to both UK and non-uk businesses, a UK business trading below the VAT registration threshold would not be required to be VAT-registered and as a result would not have a registration number to display. These three changes will help to ensure that VAT is being accounted for on all goods sold in the UK. It will also mean that selling online does not offer any VAT advantage over selling on the high street. Marketplaces will need to verify the VAT status of all businesses that trade on them and ensure that they are correctly accounting for VAT.

ALL YOU NEED TO KNOW AUTUMN BUDGET 2017 PAGE 15 SPLIT PAYMENTS MECHANISM The Budget included an update on HMRC s proposals to counter VAT evasion by applying a split payments mechanism. This mechanism would require the online marketplace to pay the VAT on each sale directly to HMRC and only pay the net price to the business. A split payments model is expected to involve real time extraction of VAT, using payment technology, which would then be deposited with the tax authority. On 1 December 2017, HMRC will publish a summary of responses to its recent consultation on the role of financial organisations, such as payment service providers, in putting a split payments mechanism into practice. HMRC says that the responses have been broadly positive but have highlighted the complexities of implementation. HMRC s forthcoming response document will set out plans for a further round of consultation in 2018. The Committee of Public Accounts recently urged HMRC to speed up the introduction of split payments. REVERSE CHARGE LABOUR IN CONSTRUCTION INDUSTRY The Government will introduce a domestic reverse charge on the supply of labour in the construction industry. The new measure means that the recipient rather than the supplier would account for the VAT due. The change will come into force on 1 October 2019. HMRC is trying to tackle fraud in the sector, for example in large civil engineering projects, fraudsters may take over an existing business with Gross Payment Status and misdeclare VAT. The Government has recently consulted on this measure. A summary of responses to the consultation will be published on 1 December 2017. Draft legislation will then be offered for further consultation in the spring of 2018. A final draft of legislation and guidance is to follow in October 2018. HMRC has evidently listened to requests from the industry for a long lead time to prepare for the changes. However, it has yet to comment on how recipients of labour should determine the VAT liability of their reverse charges. Construction labour on certain building contracts is eligible for zero-rating or the reduced rate. It may be more difficult for a party other than the supplier to make the complex determination of whether a lower rate of VAT applies. indirect taxes

ALL YOU NEED TO KNOW AUTUMN BUDGET 2017 PAGE 16 FURTHER VAT CHANGES VAT REGISTRATION THRESHOLD FROZEN AT 85,000 FOR TWO YEARS The VAT registration threshold of 85,000 will be frozen at its current level, until at least 31 March 2020, to allow the Government time to consult on possible reforms. The de-registration threshold will be frozen at 83,000. In a recent report, the Office of Tax Simplification (OTS) noted that the high level of threshold in the UK, the highest in the EU and OECD, has a distortionary impact on business growth and activity. The OTS is particularly concerned about the cliff edge effect of the threshold for small businesses that primarily provide goods and services to the public. The OTS report recommends that the Government examine the current approach and design and suggests mechanisms to smooth the transition into charging VAT, such as: A turnover band above the registration threshold within which a business would need to account for only a proportion of its net VAT Reduction of rates for businesses above the VAT threshold but within the Flat Rate Scheme threshold An option to choose a longer first VAT return period, eg 6-12 months Applying the threshold test over two years to smooth out variations in turnover. The Chancellor s speech suggested that any major reduction to the VAT threshold is unlikely, at least in the short term. However, he may favour some kind of smoothing mechanism. Unfortunately, simply freezing the threshold means that the effect of inflation will require another 6,000 small businesses to register for VAT in the next two years. indirect taxes

ALL YOU NEED TO KNOW AUTUMN BUDGET 2017 PAGE 17 indirect taxes CASH FLOW RELIEF FOR IMPORT VAT AFTER BREXIT A hard Brexit may mean that businesses have to pay customs duty and import VAT on goods brought into the UK from the EU. Currently, VAT on B2B arrivals of EU goods is accounted for as acquisition tax on the buyer s VAT return. Under a hard Brexit, importers would face a liability to pay import VAT at the time the shipment enters the UK. They would not be able to recover this until they submitted their next VAT return. This could impact on cash flow and working capital. The Government now acknowledges the potential impact of a customs border on import VAT. It has pledged to look at options to mitigate the cash flow effect on the supply chain. However, it has yet to make any specific proposals as to how this might be achieved. Until this becomes clear, businesses buying goods from the EU should investigate the benefits of a deferment account or using customs warehousing arrangements to defray payment of customs duty and import VAT after Brexit. More urgently, they should consider applying for accreditation as an Authorised Economic Operator (AEO) to provide faster customs clearance and approvals for goods. AEO status automatically meets approval standards for SIVA (Simplified Import VAT Accounting), which allows importers to use a duty deferment account without providing a financial guarantee. Read BDO s article on the benefits of AEO for more information. REFORM OF VAT TREATMENT OF VOUCHERS The VAT treatment of face value vouchers will change from 1 January 2019 resulting in many businesses paying VAT earlier. The EU has proposed changes to the Principal VAT Directive from January 2019 that will affect the VAT treatment of vouchers. Although the UK is expected to leave the EU in 2019, the Government has confirmed that these changes will be introduced into UK legislation. Under the changes, more vouchers will be classed as Single Purpose Vouchers meaning that the VAT is accounted for when the voucher is sold, not when it is redeemed. A voucher will only be taxable on redemption if it is not a Single Purpose Voucher, ie the place of supply or the VAT rate applicable to the goods or services concerned is not known when the voucher is sold. VAT will also generally become due on the face value of the voucher and not on the price that the voucher was initially sold for, as under the current rules. A consultation on these proposals will start on 1 December 2017. This measure will result in major changes to VAT accounting for businesses that sell vouchers. In addition, all businesses will need to review their procedures to ensure that they can deal with the new VAT treatment. However, businesses that operate across the EU will at least have the certainty that the same VAT rules will apply to voucher sales everywhere in the EU.

ALL YOU NEED TO KNOW AUTUMN BUDGET 2017 PAGE 18 05 OTHER TAXES other taxes STAMP TAXES STAMP DUTY LAND TAX (SDLT) The Government has introduced a new relief for first-time buyers of residential properties, made some minor amendments to the higher rates (the additional 3% charge), and will introduce changes to the filing and payment processes. RELIEF FOR FIRST-TIME BUYERS With effect from 22 November 2017, first-time buyers paying 300,000 or less for a (single dwelling) residential property will pay no SDLT, and those paying between 300,000 and 500,000 will pay SDLT at 5% on the excess over 300,000. The effective date of a property purchase for this purpose will usually be the completion date. Due to devolved legislation this relief will not apply in Scotland and will only apply in Wales until 1 April 2018. First-time buyers are defined as individuals who have never owned an interest in a residential property in the UK or anywhere else in the world and intend to occupy the property as their main residence. This will be a welcome relief to help first-time buyers. For example, in Greater London, on a purchase at the average price paid by a first time buyer of 421,000, the SDLT saving will be 5,000. MINOR AMENDMENTS TO THE HIGHER RATES With effect from 22 November 2017, relief from the additional 3% charge on the purchase of additional residential properties will apply where: A spouse or civil partner buys a property from the other spouse or civil partner A divorced spouse or civil partner is required to retain an interest in a residential property under a property adjustment court order relating to the divorce Property is purchased for a child by a trustee appointed by the Court of Protection An owner of a main residence buys an additional interest in the property or extends the lease. There will also be an amendment preventing abuse of the existing relief for replacement of the purchaser s only or main residence by requiring the purchaser to dispose of the whole of their former main residence and to do so to someone other than their spouse. These amendments remove some anomalies and also clamp down on avoidance.

ALL YOU NEED TO KNOW AUTUMN BUDGET 2017 PAGE 19 CHANGES TO FILING AND PAYMENT PROCEDURE Following consultation earlier this year, the reduction in the SDLT return filing and payment deadlines from 30 days to 14 days will apply to land transactions with an effective date from 1 March 2019. Those involved with SDLT compliance such as conveyancers will need to ensure their systems are adjusted in time to cope with the shorter deadline. STAMP DUTY & STAMP DUTY RESERVE TAX (SDRT) Following Brexit, the Government will continue not to apply the 1.5% stamp duty and SDRT charge on the issue of shares (and transfers integral to capital raising) into overseas clearance services and depositary receipt issuers. This is in accordance with ECJ judgements that the charge is incompatible with the EU Capital Duty Directive. TACKLING OFFSHORE TAX NON-COMPLIANCE The Chancellor announced that assessment time limits for offshore tax non-compliance will be extended following a consultation in spring 2018. The Government will publish a consultation response on 1 December 2017 on the proposed requirement to notify HMRC of offshore structures. Currently HMRC has four years to assess any additional tax not disclosed in tax returns as a consequence of non-deliberate errors and omissions (six years in the case of careless behaviour in relation to direct taxes), including those arising from technical disputes, avoidance and careless errors. These time limits will be extended to give HMRC 12 years from the end of a tax year in which to assess any additional tax arising fro offshore income, gains or activities. This will give HMRC more time to analyse data which it will automatically receive annually under the Common Reporting Standard and from other cross-border information exchanges, as well as more time to carry out investigations. HMRC will still have 20 years to assess tax not declared as a result of deliberate errors and omissions. The OECD and EU are considering whether multinational standards are needed to tackle the use of offshore structures for tax evasion. The responses to HMRC s previous consultation will be fed into these discussions. On 1 December 2017, HMRC will publish a formal response to the consultation on proposals to introduce an obligation for businesses and intermediaries creating or promoting complex offshore financial arrangements to notify HMRC of these structures and of which taxpayers are using them. Any taxpayers with historic offshore noncompliance should take advice now on making a voluntary disclosure to HMRC to bring their tax affairs up to date before the Requirement to Correct deadline of 30 September 2018 and the introduction of today s announcements. other taxes

ALL YOU NEED TO KNOW AUTUMN BUDGET 2017 PAGE 20 FURTHER ANTI-TAX AVOIDANCE MEASURES The Government has published a new policy paper on Tackling tax avoidance, evasion, and non-compliance. This summarises measures introduced since 2010 targeting this area with the aim of reducing the tax gap, and includes new measures which the Government forecasts will raise an additional 4.8bn between now and 2022/23. Online marketplaces The Government expects online marketplaces to assist in encouraging tax compliance by its users. The Government will work alongside online marketplaces to understand how their business operating models work and consider opportunities to better promote tax compliance by their users. The main new measures and proposals include: HMRC investment the Government will invest a further 155m in additional resources and new technology for HMRC to focus on tackling avoidance, those enabling fraud, the hidden economy and non-compliance by midsized businesses and wealthy individuals. Debt taskforce HMRC is establishing a new taskforce in order to recover more tax debt which will specifically target debts more than nine months old. Insolvency HMRC will publish a discussion document in 2018 considering further ways to tackle taxpayers who deliberately abuse the insolvency regime in order to avoid or evade tax (eg phoenixism). THE HIDDEN ECONOMY The Government is also committed to tackling the hidden economy by making access to some trading licences conditional on proving tax registration (when an obligation to register exists). Conditionality will make it more difficult to trade in the hidden economy, levelling the playing field for compliant businesses. The Government will publish a second consultation on conditionality in December 2017 to set out sectors in which this could practically apply. Final policy design will be confirmed following consultation, and the changes will be legislated in a future Finance Bill. other taxes

ALL YOU NEED TO KNOW AUTUMN BUDGET 2017 PAGE 21 06 CONTACTS BIRMINGHAM SARAH MOSS +44 (0)121 352 6365 sarah.moss@bdo.co.uk GATWICK/GUILDFORD JO GILBEY +44 (0)1293 591 022 jo.gilbey@bdo.co.uk LEICESTER/NOTTINGHAM CHRIS BOND +44 (0)115 962 9276 chris.bond@bdo.co.uk READING DAVID BROOKES +44 (0)118 925 4445 david.brookes@bdo.co.uk BRISTOL PAUL FALVEY +44 (0)117 930 1635 paul.falvey@bdo.co.uk GLASGOW MARTIN BELL +44 (0)141 249 8488 martin.bell@bdo.co.uk LIVERPOOL LAUREN FLETCHER + 44 (0)151 237 4555 lauren.fletcher@bdo.co.uk SOUTHAMPTON JANE MULHOLLAND +44 (0)23 8088 1982 jane.l.mulholland@bdo.co.uk EAST ANGLIA PETER HARRUP +44 (0)1473 320 778 peter.harrup@bdo.co.uk GUERNSEY ANDRÉ TREBERT +44 (0)1481 741 610 andre.trebert@bdo.co.uk LONDON JONATHAN HICKMAN +44 (0)20 7893 2496 jonathan.hickman@bdo.co.uk TAX SUPPORT FOR PROFESSIONALS JEFFREY WEBBER +44 (0)20 7893 3578 jeffrey.webber@bdo.co.uk EDINBURGH JAMES PATERSON +44 (0)131 347 0376 james.paterson@bdo.co.uk LEEDS TERRY JONES +44 (0)113 204 1284 terry.jones@bdo.co.uk MANCHESTER IAN BINGHAM +44 (0)161 833 8317 ian.bingham@bdo.co.uk contacts

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