The Government published draft Finance Bill 2011 clauses in addition to the 2011/12 rates and thresholds for income tax, National Insurance contributions and tax credits.

The majority of these measures were announced in the June Budget. However the information now published also includes a small number of measures resulting from policy developments or other issues arising since then. Finance Bill 2011 will also legislate for the annual changes in rates and duties either announced previously as part of the Government's fiscal consolidation plan or, as is normal, any further policy announced at Budget 2011.

Specific tax measures of interest proposed for Finance Bill 2011 (on which draft Finance Bill clauses have now been published) are as follows:-

Personal Tax

Income tax rates and thresholds (including personal allowance) – legislation will be introduced to set rates and thresholds for income tax as announced at the June Budget.

Employer Supported Childcare

• Legislation will be introduced to remove the obligation on employers to make Employer Supported Childcare schemes delivered through salary sacrifice or flexible remuneration arrangements available to all employees.
• Legislation will be introduced to ensure that the level of tax relief on childcare vouchers and directly-contracted childcare provided through employer-supported childcare schemes will be the same for all taxpayers.

Furnished Holiday Lettings

Announced at the June Budget and following consultation over the summer, legislation will be introduced to ensure that the tax rules for furnished holiday lettings are fully compliant with European Law.

The draft clause and Schedule make three changes to the special rules for the tax treatment of income from the commercial letting of furnished holiday accommodation, extending the rules, restricting tax relief for losses and tightening qualifying criteria.

The first change extends the special rules to the letting of property outside the UK but in the European Economic Area.

The second change removes:

• income tax relief for losses against general income and for terminal losses; and
• corporation tax relief for losses against total profits.

The third change extends the length of the periods for which accommodation must be available to let and actually let if it is to qualify as holiday accommodation.

The first and second changes take effect for income tax from 2011–12 and for corporation tax from accounting periods beginning on or after 1 April 2011. The third change takes effect for income tax from 2012–13 and for corporation tax from accounting periods beginning on or after 1 April 2012.

Changes to the Substantial Donors Rules

As announced at the June Budget and following extensive consultation with the charity sector, legislation will be introduced to replace the existing provisions for countering known abuse of charity tax reliefs.

To be known as ‘tainted charity donations’, the clause brings in a new anti-avoidance rule to prevent the abuse of the tax reliefs available to charities and donors to charity with effect from 1 April 2011. The rule ensures that the usual tax reliefs are not available where donors enter into arrangements to obtain an advantage from the charity in return for their donation.

Pensions Tax

Restricting pensions tax relief – following consultation over the summer, legislation will be introduced to restrict pensions tax relief for individuals by reducing the annual allowance from 2011 (to be lowered to £50,000) and the lifetime allowance (to be lowered to £1.5 million) from 2012. Draft legislation covering the changes to the allowances was published on 14 October with updated legislation published last month.

Corporate Tax Measures

Main rate – part of the June Budget, the Government announced a phased reduction in the main rate of corporation tax over four years. Legislation will be introduced to reduce the main rate of corporation tax to 26 per cent from 1 April 2012.

The Government has also asked for views on whether legislating for all the remaining pre-announced reductions to the main corporation tax rate in Finance Bill 2011 would provide greater certainty to business and whether the Government should pursue this option.

Small profits rate – a further June Budget announcement, the Government also announced a 1 per cent reduction in the small profits rate of corporation tax. Legislation will be introduced to reduce the small profits rate of corporation tax to 20 per cent from 1 April 2011.

Capital allowances: writing-down allowances – as part of the package of corporate tax reforms announced in June, legislation will be introduced to reduce the rate of writing-down allowances on the main pool of plant and machinery expenditure to 18 per cent and on the special rate pool to 8 per cent, both from April 2012.

For chargeable periods which straddle the relevant date, the rate of writing-down allowance is a hybrid of the rates before and after the change.

Capital allowances: annual investment allowance – legislation will also be introduced to reduce the annual investment allowance from £100,000 to £25,000 from April 2012.

Interim controlled foreign companies (CFCs) reform – As set out in the corporate tax reform document published on 29 November 2010 legislation will be introduced to make the current CFC rules easier to operate and as a first step to making the rules more competitive ahead of the full reform planned for Finance Bill 2012.

Taxation of foreign branches – also set out in the corporate tax reform document, legislation will be introduced to provide an opt-in exemption from corporation tax for the profits of foreign branches of UK companies.

Corporate capital gains simplification – following extensive consultation on simplification of the capital gains rules for groups of companies, legislation will be introduced to:

• remove some existing restrictions on the use of capital losses within a group of companies after acquisition of a business;
• replace a complex set of anti-avoidance rules with a clearer purpose-based rule; and
• modernise the degrouping charge rules, in particular how they interact with the substantial shareholdings exemption, with the intention of making it easier for companies to plan acquisitions and disposals of group companies.

Associated companies – following extensive consultation, including the publication of a consultation document in October 2009, legislation will be introduced to ensure that companies are only held to be associated substantial commercial interdependence exists between them.

OECD transfer pricing – Following new guidelines approved by OECD for publication in July 2010, legislation will be introduced to amend the definition of “transfer pricing guidelines”. The changes apply, for corporation tax purposes, for accounting periods beginning on or after 1 April 2011, and, for income tax purposes, for the tax year 2011–12 and subsequent tax years.

International accounting standards and leasing – new accounting standards are expected to be introduced from 2011. Legislation will be introduced to ensure that the tax treatment of lease transactions is not affected by future changes to lease accounting standards.

VAT supply splitting – Legislation will be introduced to cancel the tax advantage currently enjoyed by businesses that supply services and arrange for different suppliers to supply printed matter which is connected to those services. This was confirmed in a written ministerial statement on 6 December 2010.

VAT: treatment of business samples – as set out in a Revenue & Customs Brief published on Friday, legislation will be introduced to ensure that where businesses provide samples of their products free of charge to individuals for marketing purposes, none of the samples are liable to VAT.

Avoidance

The Exchequer Secretary set out the Government's ongoing commitment to tackling tax avoidance in a written ministerial statement on 6 December.

Group mismatches – Following consultation over the summer, legislation will be introduced to ensure that groups of companies cannot use loan relationships or derivative contracts to generate profits or losses purely as a result of accounting asymmetries. As confirmed in the statement of 6 December 2010, an interim measure has been introduced with immediate effect to prevent tax losses from new schemes.

Alongside this a number of anti-avoidance measures were announced. The Government remains committed to addressing tax avoidance and may also introduce further measures for Finance Bill 2011 as required.

Loan relationships avoidance: derecognition – Following consultation over the summer, legislation will be introduced to prevent the avoidance of corporation tax in respect of loan relationships and derivative contracts where amounts are not fully recognised for accounting purposes.

Disguised remuneration – As announced at the June Budget, legislation will be introduced that will apply in certain circumstances where employees and their employers enter into arrangements which result in a payment of money or the provision of an asset by a third party rather than the employer.

The new rules create a tax charge which will apply to certain loans of money or assets by third parties to the employee; the earmarking of money or assets for the employee by a third party; and to the outright payments of money or transfers of assets to the employee by a third party where these are not otherwise charged to tax as earnings from the employment.

The Schedule also includes anti-forestalling rules which will mean that certain events occurring on or after 9 December 2010 (the date on which the Schedule was published in draft form) but before 6 April 2011 will fall to be taxed on 6 April 2012 under the new rules.

HMRC Administration

Financial securities for PAYE – The Government is consulting on proposals to allow HMRC to require a security from employers for PAYE and NICs that is seriously at risk.

Data-gathering powers – The Government is consulting on proposals to modernise and simplify HMRC's information gathering powers to be known as the ‘power to obtain data’.

The Review of Powers, Deterrents and Safeguards was set up to review cross-tax legislation in the light of the creation of the single department of HM Revenue and Customs. The latest phase of the Review's work is to modernise and align the more specialist information powers which apply to certain third parties and which in some cases allow for the provision of bulk information.

These parties are now called data-holders. This phrase will also cover involved third parties.

Full details are on the HM Treasury website at http://www.hm-treasury.gov.uk/d/financebill2011_draft_clauses_explanatory_notes.pdf. Comments are requested by 9 February 2011, when consultation on the draft legislation will close.