2009 Budget Report

2009 Budget Report - Reallocation of chargeable gains between groups    

Changes introduced in Finance Bill 2009 should enable chargeable gains and losses arising across a group of companies to be offset more easily, with certain restrictions being eased.

Legislation will be included in Finance Bill 2009 to enable companies to transfer gains or losses to other group companies, instead of the current regime where the assets being disposed of are deemed to be transferred.

Restrictions relating to the type of asset and circumstances under which the gain or loss arises will cease to apply.

2009 Budget Report - Release of trade debts between connected companies  

The risk of a taxable credit arising without a corresponding allowable debit arising on the release of trade debts by connected companies has in many cases presented a barrier to group restructuring exercises.
Changes introduced in Finance Bill 2009 will ensure that no tax charge will arise in respect of the credit arising when trade or property business debts between connected companies are formally released.

Accordingly, this provides opportunities for groups to revisit any restructuring and rationalisation opportunities.

This change will apply to debts released on or after 22 April 2009.

2009 Budget Report - Taxation of foreign profits    

The exemption available from tax on most foreign dividends for UK companies will be available from 1 July 2009 and will now be applicable for companies of all sizes. This is to be welcomed and will benefit UK companies with overseas subsidiaries repatriating profits to the UK.
Now may be a good time to consider the structure of groups with overseas subsidiaries in light of the exemption.

The proposed debt cap rules have been delayed and there is still uncertainty around the detail of the rules.  Accordingly it would be wise to postpone any actions which may be affected by these rules.  Further commentary will be provided when the Finance Bill has been published.

In summary, Finance Bill 2009 will include:

• Provision for an exemption from corporation tax in respect of dividends and other distributions received from foreign companies received on or after 1 July 2009;
• A restriction on allowable finance expenses payable by UK members of a group to the consolidated gross finance expense of the “worldwide group” in accounting periods beginning on or after 1 January 2010;
• removal of the holding company and  of the acceptable distribution policy exemptions for controlled foreign companies (“CFCs”) with effect for accounting periods beginning on or after 1 July 2009; and
• repeal of the existing Treasury Consent legislation and the introduction of a new post-transaction reporting requirement for transactions undertaken on or after 1 July 2009.

Measures relating to anti-avoidance rules for loan relationships and derivative contracts forming part of arrangements which have a tax avoidance purpose will not be included in Finance Bill 2009 but will be kept under review
 
 
2009 Budget Report - Debt Collection    

The Budget Notes do contain a few points of interest, especially after lthe recent TONIGHT programme on ITV!

MPP’s will allow some taxpayers to spread payments over a period straddling the normal due date to aid cash-flow without incurring interest or penalties under the new rules. There is no interest on amounts paid early, which seems fair enough as these will be balanced by similar amounts paid late.

Also good news is the confirmation that HMRC will accept that it is inappropriate to pay no interest on tax overpayments – as has been the case since January. If ever legislation required back-dating, this would be it. We wait to see whether it will be. When there is no recompense for HMRC having the use of your money there are obvious difficulties arising if there is a lack of urgency in repaying it!

Not such good news for some, is that HMRC will be permitted to claim costs in Court actions to recover debt. That sounds fair enough when the debtor is at fault, but this is not always the case. Sometimes default is unavoidable and, of course, as the TONIGHT programme highlighted, HMRC are capable of making mistakes [see also Andy Wells’ article: http://www.mercurytg.com/images/stories/pdfs/Andy_Taxation_Article_6_9_07.pdf ).

There is a provision for “naming and shaming” tax defaulters where the amount is collected through civil proceedings and the amount exceeds the relatively modest threshold of £25,000. There will be let-outs and it is subject to a right of appeal. There are sure to be disputes about this. As this is going to create more work for many, it is to be hoped that the deterrent effect will be as much as HMRC wishes.

A new power to require a third party to provide HMRC with a tax debtor’s name and address is introduced as well. This by-passes the Data Protection Act. If HMRC has “reasonable grounds to believe” that the third party concerned holds the data it must be produced when this power is used by the specialist tracing unit within HMRC. Inevitably, there is a provision for penalties for non-compliance. Most organisations will have no problem with HMRC tracing defaulters, but it is a shame perhaps that penalties may be levied from innocent third parties. Hopefully instances will be very rare.

Senior Accounting Officers

Whilst on the subject of new penalties, there is provision to require large companies and groups to nominate a person who can be held personally liable for a penalty if internal accounting records are inadequate. This goes as far as requiring the officer concerned to specify the inadequacies [for which, it seems they or their predecessors are in any event responsible] and confirm that they have been notified to the auditors! Who would want that job?

Stephen Burwood

Tax Specialists - Leeds Financial