TaxSource Total

Here you can access relevant source documents which support the summaries of key tax developments in Ireland, the UK and internationally

Source documents include:

  • Chartered Accountants Ireland’s representations and submissions
  • published documents by the Irish Revenue, UK HMRC, EU Commission and OECD
  • other government documents

The source documents are displayed per year, per month, by jurisdiction and by title

Pre-Budget Report

UK Pre-Budget Report – Commentary on Selected items

Rates and Allowances – Tax, National Insurance and Tax Credits

Income tax

Income tax personal allowances for 2006/07 have been increased in line with inflation. Thus the basic personal allowance will be £5,035 (2005/06 – £4,895).

The 2006/07 age-related personal allowance for those aged 65 to 74 will be £7,280, and for those aged 75 or over, £7,420 (2005/06 – £7,090 and £7,220 respectively). The income limit for age-related allowances will increase to £20,100 from £19,500 in 2005/06. In 2005/06 the age related allowances were uprated in line with earnings but this has not been done for 2006/07.

Married couple's allowance for 2006/07 (which will also apply to registered civil partners) where one partner was born before 6 April 1935 will be £6,065 for those below 75 and £6,135 for those aged 75 or over. The minimum amount of the MCA will be £2,350.

National Insurance contributions

Employers’ and Employees’ Contributions

Class 1 NIC thresholds for 2006/07:

  • The lower earnings limit for employees’ Class 1 contributions will be £84 a week.
  • The primary and secondary thresholds for Class 1 contributions will be £97 a week.
  • The upper earnings limit for employees’ Class 1 contributions will be £645 a week.

The standard main rate of employees’ Class 1 contributions below the upper earnings limit will continue to be 11%, and above the limit will continue to be 1%. The standard rate of employers’ Class 1 contributions will continue to be 12.8%.

The employees’ contracted-out rebate remains at 1.6%, and the married women's reduced rate at 4.85%. The employers’ contracted-out rates for salary-related and money-purchase schemes remain at 3.5% and 1% respectively.

The self-employed

  • The rate of Class 2 contributions will remain unchanged for 2006/07 at £2.10 a week.
  • The annual small earnings exception will be raised to £4,465 (2005/06 – £4,345).
  • The annual lower and upper profits limits for Class 4 contributions will increase for 2006/07 to £5,035 and £33,540 respectively.
  • The rate of Class 4 contributions will be unchanged at 8% on profits below the upper profits limit and 1% on profits above that limit.

Share Fishermen

The special rate of Class 2 contributions for share fisherman, which allows them to build entitlement to contributory Jobseeker's Allowance in addition to the other contributory benefits available to the self-employed, will remain at £2.75 per week.

Volunteer Development Workers

The special rate of Class 2 contributions for volunteer development workers, that entitles them to the full range of contributory benefits, will be increased to £4.20 per week (2005/06 – £4.10).

Voluntary Contributions

The rate of Class 3 voluntary contributions will be increased by 20 pence to £7.55 a week.

Tax credits and child benefit

Tax Credits

Tax credits rates and thresholds have for the most part been increased in line with inflation for 2006/07.

Exceptions are:

  • The basic child element of Child Tax Credit, which has been uprated in line with earnings to £1,765.
  • The limits on eligible childcare, which remain at £175 a week for one child and £300 a week for two or more.
  • The maximum tax credit for childcare costs, which will increase to 80% of the weekly limit (2005/06 – 70%). This had been announced previously.
  • The family element of Child Tax Credit (£545, plus £545 for a new baby), which remains unchanged.
  • The first and second income taper thresholds, which remain unchanged at £5,220 and £50,000, and the fast and slow taper rates (37% and 6.67%).
  • The income disregard for increases in income from one year to the next, which goes up tenfold in 2006/07 to £25,000 (2005/06 – £2,500).

Child benefit and guardian's allowance – the 2006/07 rates will increase in line with inflation, except for the lone parent element, which is frozen.

Business measures

UITF 40 and Spreading

The government has announced that it will introduce legislation in Finance Bill 2006 to spread the impact (‘adjustment income’) of UITF 40 over three years with spreading up to six years when the impact of UITF 40 is greatest. The spreading relief will be available to all business and is not restricted just to Small and Medium Sized Enterprises (SMEs). In addition, the spreading relief will also apply for the purposes of corporation tax as well as income tax and will apply also to those companies etc which switch to international accounting standards in the relevant period to the extent that the comparable international standard (IAS18) would impose a similar uplift as UITF40.

Small Business Taxation

The Chancellor announced that the zero starting rate band will be withdrawn and that all small company profits will once more be taxed at 19%.

Capital Allowances

There were a number of changes to the capital allowances system scattered throughout the PBR documentation. Some will be implemented in April 2006, others will be the subject of further consultation.

Small Businesses

The more generous 50 per cent rate of first year capital allowance for small businesses was only available for expenditure between 1 April 2004 and 31 March 2005.Following the abolition of the nil starting rate of corporation tax, it is now to be reintroduced from April 2006.

Capital Allowances for Cars

Further to the consultation into the reform of corporation tax, the Government is giving further consideration to modernising the capital allowances system for business cars. Options include introducing a new car pool with a range of first year allowances depending on CO2 emissions, building on the existing FYA for cars with very low emissions, and reforms to VED and company car tax.

Enhanced Capital Allowances for Biofuels

The Government has announced that, subject to State Aid approval, it will go ahead with a 100 per cent first year enhanced capital allowance for biofuels plant that meets certain qualifying criteria.

Green Landlord Scheme

Landlords are to be encouraged to invest in the energy efficiency of their property through a Green Landlord Scheme. It seems that further to consultation earlier this year, the Government now plans to reform the existing Wear and Tear allowance by making it conditional on the energy efficiency level of the property. It may also extend the allowance to unfurnished lettings and link this to the forthcoming Energy performance Certificates.

Renovation of Business Premises in Disadvantaged Areas

The 2005 PBR gives details of responses made to the consultation document issued by HMRC in 2004 relation to capital allowances for the renovation of business premises in disadvantaged areas.

The scheme will give 100 per cent allowances for the costs of renovating or converting unused business premises in disadvantaged areas. Draft legislation, is not yet available, although it appears that the allowance will indeed exist for an initial period of five years.

Tax avoidance

Amendments to the Disclosure Rules

The Disclosure of tax avoidance scheme rules (DOTAS) (direct tax) regime was introduced by FA 2004 and came into effect from August 2004. Under the regime promoters and some users of certain tax planning schemes have to inform the tax authority of the schemes within a very limited time either of their implementation or of the schemes being available for implementation.

Although the primary legislation applies to all the main taxes DOTAS was initially restricted to financial and employment related products. It has since been extended to NICs and Stamp Duty Land Tax. The Chancellor announced in the PBR that DOTAS will now be extended to cover all income tax, corporation tax and capital gains tax.

Other anti-avoidance measures

Sale of Lessor Companies

Finance Act 2006 will contain provisions to change the way that lessor companies are taxed after there is a change in ownership. Some groups are benefiting from capital allowances in the early years of a lease and then the lessor companies are being sold, tax free using the substantial shareholding exemption, to loss-making groups so that the subsequent leasing profits are covered by the group losses. Draft clauses have been published.

The proposals will:

  • Impose a tax charge on the lessor company on the day of sale equal to the tax benefit obtained to date from the allowances. The charge will be borne by the original owner regardless of what arrangements are in place;
  • Grant relief equal to the tax charge to the lessor company on the day after the sale which will only be available to the new owner.

The aim is to ensure that a tax driven sale to a loss making group is unattractive as the purchase will only increase the losses of the purchaser. By contrast, a commercial sale to a profitable leasing group will be neutral as the charge and the relief will cancel each other out.

Policies of Insurance and Non-Deferred Annuities

With effect from 5 December 2005 the rules relating to capital gains tax are being amended to prevent a deduction for CGT purposes for losses on disposals of certain insurance policies including capital redemption policies.

Details of schemes to create capital losses using capital redemption policies have been disclosed to HMRC under the tax avoidance disclosure regime. The schemes purport to create allowable losses in circumstances where there is no matching economic loss. Capital redemption policies are insurance policies not linked to human life under which an insurer, in return for a sum or sums of money, guarantees to pay a larger sum on a future date or to make a series of payments. HMRC takes the view that the existing exemption from CGT applies to all non-life policies of insurance including capital redemption policies. Nevertheless the law is to be clarified to ensure that gains and losses arising on such policies are not chargeable or allowable for CGT purposes.

An amendment to the CGT law is also being made with effect from 5 December 2005 to deny CGT relief for losses on disposals of non-deferred annuities. The existing CGT exemption only applies to annuities granted by companies. The new provision will apply to an annuity granted in the ordinary course of a business of granting annuities on human life irrespective of who carries on the business.

Pre-Owned Assets (POA) and Reverter-to-Settlor Trusts

Legislation taking effect from 5 December 2005 is being introduced to apply the POA income tax charge where an owner transfers an asset but continues to enjoy it as the beneficiary of a ‘reverter-to-settlor’ trust. The charge will apply to all trusts, whenever created, where the trust property will or could revert to the settlor or his spouse (or civil partner) in circumstances where the exemptions from inheritance tax (IHT) apply.

The POA income tax charge does not apply where the asset in question still counts as part of the taxpayer's estate for IHT purposes. Existing provisions allow taxpayers who do not wish to be subject to the income tax charge to elect that the property should fall back into their estate for IHT purposes.

Inheritance Tax (IHT): Second-Hand Excluded Property

New anti-avoidance legislation is being introduced with effect from 5 December 2005 to prevent IHT avoidance by UK-domiciled individuals who purchase secondhand interests in foreign trusts.

Hitherto property held on trust which was situated outside the UK was ‘excluded property’ for IHT purposes unless the settlor was domiciled in the UK when the settlement was made. UK-domiciled individuals have exploited the exemption by purchasing interests in preexisting trusts originally settled by a person domiciled outside the UK. The exemption will not be available where such interests are bought after 5 December 2005.

Income Tax

Transfer of Assets Abroad

Draft clauses amending s741 ICTA 1988 have been published. This is anti-avoidance legislation directed at individuals ordinarily resident in the UK who avoid income tax by means of transfers of assets that result in income becoming payable to a person abroad, currently dealt with by anti avoidance legislation contained in ss 739 and 740 ICTA 1988. For example, using a non-UK company to run a business controlled by a UK resident so that UK tax is deferred until the shares are sold.

The new legislation, which is to take effect from 5 December 2005, proposes a revision to the existing let-out conditions.

Draft s741A gives two conditions which may apply:

  1. Condition A is that it would not be reasonable to draw the conclusion, from all the circumstances of the case, that the purpose of avoiding liability to taxation was the purpose, or one of the purposes, for which the relevant transactions or any of them were effected.
  2. Condition B is that—
    1. all the relevant transactions were genuine commercial transactions, and
    2. it would not be reasonable to draw the conclusion, from all the circumstances of the case, that any one or more of those transactions was more than incidentally designed for the purpose of avoiding liability to taxation.
  3. The intentions and purposes of any person who, whether or not for consideration,—
    1. designs or effects the relevant transactions or any of them, or
    2. provides advice in relation to the relevant transactions or any of them, are to be taken into account in determining the purposes for which those transactions or any of them were effected.

This means that essentially, under the new rules an individual will have to meet one of two conditions:

  • exemption will run where an individual broadly shows that it would not be reasonable to draw the conclusion, from all the circumstances of the case, that there was a tax avoidance purpose; and
  • the intentions of advisers are to be taken into account in determining whether there was a purpose to avoid tax.

Value-Added Tax

Buildings and Land: the future of the option to tax

HMRC have published Business Brief 23/05 dated 5.12.05, see, describing the conditions under which written consent to revoke an option to tax will be granted by HMRC once 20 years have elapsed from the date on which an option was made. Options will first become eligible for the 20-year revocation from 1 August 2009. Written consent for revocation will be possible by two routes, either Automatic Consent or Permission Consent.

Installation of Wood, etc Fuelled boilers

From 1 January 2006, the reduced rate of VAT of 5% which applies to the installation of certain energy saving materials will be extended to boilers fuelled solely by wood, straw and similar vegetal matter in homes and certain residential and charity buildings.

Gaming Machines

From 6 December 2005, the definition of a gaming machine for VAT purposes in Group 4, Schedule 9, VAT Act 1994 is being changed.

Schemes for Smaller Businesses

The VAT Annual Accounting Scheme threshold will be increased from 1 April 2006 to £1.35 million from its present level of £660,000. The Chancellor has asked the European Commission for a derogation to allow an increase of the Cash Accounting Scheme threshold to the same figure.

Insurance Exemption

The government has decided to delay the implementation of the ECJ decision in Arthur Andersen & Co Accountants (C-472/03). The question put to the ECJ was whether such back office activities carried out for an insurance company were exempt from VAT under Article 13B(a) of the Sixth Directive as ‘related services performed by insurance brokers and insurance agents’. The ECJ found that Andersen were neither insurance brokers nor insurance agents for the purposes of the VAT exemption and their services therefore fell to be liable to VAT at the standard rate.

Pensions and Investments

SIPP Investments

The new pension tax regime begins on 6 April 2006 (A day) and the Chancellor has belatedly announced that Self Invested Personal Pension Schemes (SIPPs) and Small Self Administered Schemes (SSASs) will not be able to invest in residential property and in other personal chattels all of which are to be treated as prohibited assets. This will deter these pension schemes from investing in not only residential property but also fine wine, paintings, race horses and other ‘exotic’ investments which had been much written about in the press.

Tax-Free Pension Lump Sums

The government is also proposing to stop scheme members taking tax free lump sums out of their pension schemes and then reinvesting the lump sum to obtain further tax relief. It is then possible to take out a further lump sum and reinvest that. This is referred to as ‘recycling’. There will be legislation to prevent lump sums being recycled in this way but the withdrawal of a lump sum benefit in the normal course of taking pension benefits will not be affected.

Real Estate Investment Trusts (REITs)

The Government will bring forward draft legislation to establish UK REITs for inclusion in the 2006 Finance Bill. Details of the tax proposals will be published by HMRC before the end of this year and it will include the following key features:

  • REITs the regime will be open to companies, resident in the UK, that are publicly listed on a Recognised Stock Exchange;
  • companies or groups that meet the eligibility criteria will not pay corporation tax on qualifying property rental income or qualifying chargeable gains; and
  • a requirement to distribute at least 95 per cent of net taxable profits on rental income to investors, who will then pay tax at their marginal rate.

The introduction of REITs has been long awaited and should lead to increased investment into property, although the Government is determined to ensure that the introduction of REITs will be revenue neutral. The Government will announce in the Budget 2006 final details of the conversion charge applying to companies joining the regime.

Film Tax Relief

A new film tax regime will come into effect from 1 April 2006.

The new relief will apply to production companies rather than ‘producers’. The new relief will not apply to partnerships or individuals.

The relief for large and low-budget films will be as follows:

  • Large budget films (production expenditure greater than £20 million) – an enhanced deduction of 80 per cent and/or a cash tax credit of 20 per cent; and
  • Low budget films (total production expenditure less than £20 million) – an enhanced deduction of 100 per cent and/or a cash tax credit of 25 per cent.

This relief is significantly greater than that proposed in the July 2005 Consultation Document when enhanced deductions of 25 per cent and 50 per cent and cash credits of 25 per cent and 30 per cent were proposed for large and low-budget films respectively.

The repayable tax credit may only be claimed on ‘qualifying UK production expenditure’ which is limited to 80 per cent of total production expenditure. This will amount to a cash tax benefit of 16 per cent (20 per cent × 80 per cent) for large budget films and 20 per cent (25 per cent × 80 per cent) for low budget films.

The reliefs will only be available for expenditure incurred on the production of culturally British films.

The new film tax credits will not apply where expenditure is incurred on the acquisition of a film. Acquisition expenditure, which did qualify under the current rules, will in future fall within the intellectual property regime.

The above is an extract from the excellent PBR summary prepared by the ICAEW Tax Faculty team of Peter Bickley, Frank Haskew, Kevin McCormick, Anita Monteith, Jane Moore and Ian Young, and reproduced with their permission.