The UK Finance Bill for 2016 was published on 24 March 2016. The Bill contains tax measures announced in the Budget proposals on 16 March.

Individual income tax

As announced in the Budget the annual exempt amount for individual income tax is to rise from GBP 11,000 to GBP 11,500 and the threshold for the higher rate of income tax is to rise from GBP 42,385 to GBP 45,000. There are also changes to tax on savings income including a new annual personal savings allowance and a new dividend allowance.

Capital gains tax

The rate of capital gains tax for basic rate taxpayers is to decrease from 18% to 10% and the rate of capital gains tax for higher rate taxpayers is to decrease from 28% to 20%. The entrepreneur’s relief from capital gains tax is to be extended to long term investors in unlisted companies.

Corporation tax

The Finance Bill also contains proposed measures connected to the OECD recommendations on base erosion and profit shifting (BEPS). There is hybrid mismatch legislation to counteract arrangements that result in a deduction for various payments where there is no corresponding inclusion in ordinary income, or that result in double deductions from ordinary income. These rules effectively replace the existing anti-arbitrage rules.

There is also legislation to limit the amount of tax relief for interest expense. This will be limited to 30% of taxable earnings in the UK or based on the net interest to earnings ratio for the worldwide group. This rule is subject to a threshold limit of GBP 2 million net UK interest expense and provisions for public benefit infrastructure. Base erosion using royalties will be combated by extending withholding tax to cover all intangible assets such as trademarks and brand names and to include rules to combat treaty abuse.

The corporation tax rate is to be reduced to 17% from 1 April 2020.

Insurance Premium Tax

The standard rate of insurance premium tax is to increase to 10% with effect from 1 October 2016.

Publication of tax strategy

Under the provisions of the Finance Bill all qualifying groups, companies, partnerships and permanent establishments are to be required to publish on the internet a tax strategy in relation to UK taxation. There are penalties for non-publication or for incomplete content. The Bill also includes a special measures regime to counter large businesses that engage in aggressive tax planning or do not engage with HMRC in an open and cooperative manner.

Tax avoidance schemes

The Finance Bill introduces with effect from 6 April 2017 a system of warnings and sanctions for persons persistently engaging in tax avoidance schemes that are defeated by HMRC. After a tax avoidance scheme is defeated HMRC will issue a notice warning the taxpayer that the use of any tax avoidance schemes in the subsequent five years that are also defeated by HMRC will result in a penalty based on the amount of understated tax. Where any further schemes are used and defeated by HMRC while the taxpayer is under warning the penalty will rise to a maximum of 60% of the understated tax. If HMRC defeats three avoidance schemes while the taxpayer is under warning the taxpayer’s details can be published. If three avoidance schemes involving tax relief are used and defeated while the taxpayer is under warning the taxpayer will be denied the benefit of tax reliefs until the warning period expires.

The Finance Bill also makes changes to the legislation on Promoters of Tax Avoidance Schemes (POTAS) to introduce a new threshold condition from the date of Royal Assent of the Bill which if met identifies a promoter as a promoter of tax avoidance schemes to whom a conduct notice may be issued. The change is intended to ensure that promoters who display the behavior of promoting a series of tax avoidance schemes that do not work are brought within the POTAS legislation.

Offshore tax evasion

The Finance Bill introduces new civil penalties for promoters of offshore tax evasion or other forms of non-compliance. There is provision for a financial penalty and for publication of information about the enabler of offshore tax evasion. The penalties apply in relation to income tax, capital gains tax and inheritance tax.

Also minimum penalties are increased in relation to inaccuracies, failure to notify a charge to tax or failure to deliver a return if the penalty relates to an offshore matter or to an offshore transfer. The behavior leading to the penalty must have been deliberate or deliberate and concealed for the increased penalties to apply. There is also a new asset based penalty for offshore tax evasion that is levied as an additional penalty for serious cases of offshore tax evasion. The penalty is based on the value of the asset underlying the offshore tax evasion.

A new criminal offense is introduced for failing to declare offshore income and gains that does not require the prosecution to demonstrate intent. This will apply for income tax and capital gains tax where a person has failed to properly declare offshore income and gains and this leads to a loss of tax over a threshold amount (to be defined in the regulations) on a tax year basis.