The government has confirmed that the new Construction Industry Scheme will be introduced on 6 April 2007. Subcontractors may be entitled to receive payments without deduction of tax if they have satisfied certain criteria. Otherwise there is a standard deduction rate (currently 18%) for registered subcontractors.
An increasing proportion of subcontractors in the current scheme do not have their full tax and NIC met by their deductions. To reduce the additional payments due after the end of the year, the new scheme will have a standard deduction rate of 20%.
A higher deduction rate is introduced in the new scheme which allows unregistered subcontractors to start work. The government has now confirmed this rate will be 30%. One of the purposes of the higher rate is to encourage subcontractors to register.
The government remains concerned about the tax motivated incorporation of the self-employed, which involves businesses taking advantage of structural differences in the tax and NIC treatment that applies to companies. The government will therefore continue to review ‘how the system could be modernised, made simpler, more efficient and more competitive’.
In March 2006 HMRC and HM Treasury issued jointly a discussion document about business expenditure on cars.
The proposals are:
As a consequence there would no longer need to be a specific distinction between cars costing more or less than £12,000.
The government will continue discussions with business and present more detailed proposals at Budget 2007.
Legislation to establish UK-REITs was included in Finance Act 2006. The regime is open to UK resident companies that are listed on a recognised stock exchange. Companies that meet the UK-REIT eligibility criteria will not pay corporation tax on qualifying property rental income or qualifying chargeable gains.
UK-REITs are required to distribute at least 90% of the tax exempt profits each year. The dividends paid out of the tax exempt profits will be treated as property income in the hands of the shareholders.
Two main changes are proposed to the regime:
Where a company has unrelieved trading losses and transfers its business to another company, the losses may, in certain scenarios, be transferred to the successor company. Proposals will adapt the rules which govern the transfer of trading losses by Lloyd’s corporate members from one company to another company under the same control, typically as part of a group reconstruction.
The proposals will enable Lloyd’s corporate members to benefit from the transfer of losses in the same way as other companies.
The CFC tax rules potentially apply to tax UK companies with subsidiary companies operating in low tax jurisdictions. A proportion of the profits may be subject to UK tax if the profits are not paid by the subsidiary to the UK company. Following the recent European Court of Justice judgment in the Cadbury Schweppes case, changes are being made to the CFC rules, effective from 6 December 2006, to change the law to reflect the decision.
The changes will relax UK CFC rules by enabling UK companies to apply to HMRC to disregard those profits of their CFCs that arise from genuine economic activity in business establishments in other European Union Member States or certain other states in the European Economic Area.
The government will consult with business in 2007 on a wider package of reform.
A disclosure regime for tax schemes was introduced in 2004 that has enabled HMRC to respond to avoidance schemes more swiftly. The government has announced measures, effective from 6 December 2006, to tackle artificial schemes, brought to light under the disclosure rules. These schemes which have exploited certain aspects of tax legislation include the rules on manufactured payments, exchange gains and losses, annual payments, double taxation relief and lease and leaseback.