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This analysis is part of the Lexis®PSL Tax team’s summary of the Spring Budget 2017. Some of the links require a LexisPSL subscription. If you are not a subscriber, you can take a free trial here.
In order to address a perceived unfairness in the tax code that can be exploited for avoidance, the government is removing an ability for businesses to convert capital losses into trading losses with immediate effect.
Where a capital asset is appropriated to trading stock, there is a deemed disposal for CGT purposes at market value. Currently, however, businesses can elect for an alternative tax treatment which can be particularly advantageous where a capital loss would otherwise have arisen on the deemed disposal. In such a case, the effect of the election is to reduce the allowable loss to zero and to increase (by the equivalent amount) the market value of the asset which can be brought into account as expenditure in computing trading profit. Effectively, such an election converts what would be a capital loss into a more useful trading deduction that can be offset against the total trading profits of the business.
Draft legislation released alongside Spring Budget 2017 (together with an explanatory note) removes the ability to make such an election where an appropriation to trading stock would give rise to a loss for chargeable gains purposes, meaning that an allowable loss is crystallised when the appropriation takes place and remains within the chargeable gains rules. This change has effect for appropriations to trading stock made on or after 8 March 2017 (ie the date of Spring Budget 2017). This measure will be included in FB 2017.
Similar changes are also being made to the equivalent rules relating to assets within the charge to the annual tax on enveloped dwellings (ATED), with the result that the current ability to make an election in respect of the non-ATED related part of any loss is removed. Again, the change has effect from 8 March 2017.
In both cases, the ability to make an election where an appropriation to trading stock would give rise to a chargeable gain is unaffected by these changes.
See: Spring Budget 2017 (para 3.45), OOTLAR (para 1.24) and TIIN: Corporation Tax and Income Tax – Tax treatment of appropriations to trading stock.
As announced at AS 2016 and published in draft on 31 January 2017, FB 2017 will include measures forming part of the government’s ‘Making Tax Digital’ initiative. These include digital record keeping, changes to when and how businesses record accounting and tax adjustments, and a requirement to provide HMRC with summary tax data on a quarterly basis.
At Spring Budget 2017, the government announced a one year deferral for the implementation of these measures for unincorporated businesses, and landlords, with turnovers below the VAT threshold. This means that only:
will be required to start using the new digital service from April 2018. This change will be made in regulations. There will also be a number of changes to the primary legislation in FB 2017, including new provisions to replicate existing income tax compliance powers so that they apply to the new digital requirements.
The measures generally take effect from Royal Assent (expected July 2017).
See: Spring Budget 2017 (para 3.39) and OOTLAR (para 1.47).
As previously announced and as part of tax simplification, the government is simplifying the cash basis for calculating taxable income. The cash basis allows small businesses to be taxed on the basis of receipts less payments of allowable expenses. The measures include:
See: Spring Budget 2017 (para 3.40) and OOTLAR (paras 1.44 – 1.46).
The patient capital review was launched by HM Treasury and the Department for Business, Energy & Industrial Strategy (BEIS) in January 2017 and forms part of the government’s consultation on building a modern industrial strategy. The terms of reference for this review did not previously include consideration of the tax measures linked with patient or long term funding for growing businesses, but the Chancellor today announced that the consultation to be launched in spring will extend to consider the tax reliefs aimed at encouraging investment and entrepreneurship. The announcement does not identify specific reliefs, but it is assumed that it would cover some or all of: EIS reliefs, SEIS reliefs, VCT reliefs, entrepreneurs’ relief and investors’ relief.
The final recommendations from the review will be presented to the Chancellor ahead of Autumn Budget 2017.
See: Spring Budget 2017 (para 3.13) and OOTLAR (para 2.5).
Following a review of the R&D tax regime, the government will:
See: Spring Budget 2017 (para 3.12) and OOTLAR (para 2.13)
The following corporation tax measures were previously announced and will be implemented unchanged, or with the minor changes described:
Further analysis on this Spring Budget:
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