The legislation to introduce restrictions on corporation tax deductions for interest payments was included in the Finance Bill 2017 when it was published in March. However, following the announcement of the general election, the government tabled amendments to the bill withdrawing most of its provisions before it went through the remaining House of Commons stages on 25 April and became law on 27 April. Other provisions which were dropped include reforms to corporation tax loss relief and reforms to the substantial shareholding exemption.
A government press release confirms that the Finance Bill "will legislate for all policies that were included in the pre-election Finance Bill, raising over £16 billion across the next five years to fund our vital public services".
Separately HMRC has published a revised version of the interest restriction legislation, as well as revised versions of some of the other provisions which will be included in the Finance Bill.
"The introduction of the corporate interest restriction is a major change to the UK tax system and it has been making it very difficult for groups that we have not had the final version of a piece of legislation that is effectively already in force. However, it is good news that the 1 April 2017 start date has been confirmed and HMRC has now published a revised version of the legislation” said Catherine Robins, a tax expert at Pinsent Masons, the law firm behind Out-Law.com.
The corporate interest provisions introduce a new 'fixed ratio' rule from 1 April 2017 to limit the tax relief available for companies in respect of interest payments. The changes will have particular impact for highly geared groups, especially in the real estate and infrastructure sectors.
The corporation tax loss reforms are designed to increase flexibility in how carried forward losses can be used, including by way of group relief. However, the reforms also mean that companies with profits in excess of £5m will suffer loss restrictions and will only be able to offset 50% of their profits against losses carried forward in a single year.
The substantial shareholdings exemption (SSE) changes which were previously included in the Finance Bill are designed to remove requirements that made it difficult for the exemption to be claimed, including the requirement for the selling company to be a trading company or member of a trading group. They also make the exemption available for some institutional investors on the disposal of underlying non-trading companies.
It has also been confirmed this week that legislation that provides for new corporate criminal offences of failure to prevent the facilitation of tax evasion will have effect from 30 September this year. The new offences will make businesses vicariously liable for the criminal acts of their employees and other 'associated' persons who facilitate tax evasion whilst performing services for them, even if the senior management of the business was not involved or aware of what was going on.
The government has also announced a revised timetable for its 'making tax digital' initiative. Under the new timetable, from 2019, only businesses with a turnover above the VAT threshold will have to keep digital records and only for VAT purposes. Businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020.