Finance Bill 2017: Ten Key Measures by Mark McLaughlin

Mark McLaughlin, general editor of the Bloomsbury Professional Core Tax Annuals, takes a look at some important measures in the largest Finance Bill in history.

The immediate reaction of many practitioners to the Chancellor’s Budget on 8 March 2017 was something along the lines of ‘there wasn’t much in it’. However, anyone hoping that Finance Bill 2017 would therefore be on the modest side will probably have been rather dismayed when it was published on 20 March 2017.

At 767 pages long (not to mention 448 pages of explanatory notes), Finance Bill 2017 is reportedly the largest ever UK Finance Bill. That is not to say other Finance Bills in recent years have exactly been small. For example, Finance Bill 2016 was 583 pages, the two Finance Bills in 2015 amounted to 561 pages in total, and Finance Bill 2014 was 601 pages. It seems that the government likes to keep practitioners busy!

A number of important measures are spread over different taxes, so there is potentially something for everyone. The following is a very brief outline of ten key provisions.

  1. The public sector and IR35

If a public sector body engages an individual through an intermediary (such as a personal service company), the public sector body, agency or third party paying them will now have to determine if the intermediaries legislation (or ‘IR35’ rules) applies to the engagement. The party treated as the employer for tax and National Insurance contributions (NICs) purposes is broadly required to account for tax and NICs to HMRC under real time information. The new regime applies from 2017/18, in relation to payments treated as made on or after 6 April 2017 (cl 7, Sch 1).

  1. Salary sacrifice

The tax and employer NIC advantages of optional remuneration (or ‘salary sacrifice’) arrangements is removed from 6 April 2017, subject to limited exemptions such as  employer-provided safety equipment, pension provisions and benefits related to termination of employment. The measure broadly fixes a taxable value of affected benefits-in-kind provided through salary sacrifice at the higher of the amount of cash forgone or the amount calculated under the existing benefits-in-kind rules. The measure has effect for contracts for benefits-in-kind involving salary sacrifice arrangements entered into from 6 April 2017, subject to transitional measures for employees in certain contractual arrangements before that date. It should be noted that some benefits, which would normally be exempt (eg mobile phones, parking near the workplace), are subject to the new provisions if effected through salary sacrifice arrangements (cl 8, Sch 2).

  1. Termination payments

The rules for tax and secondary NICs are to be aligned by making an employer liable on termination payments to their employees. An employer will be required to pay NICs on any part of a termination payment that exceeds the current £30,000 income tax exemption. Furthermore, payments in lieu of notice (or ‘post-employment notice pay’, as defined) will be both taxable and subject to Class 1 NICs. The employer will broadly be required to identify the amount of basic pay that the employee would have received if they had worked their notice period, even if the employee leaves the employment part way through their notice period. The amount will be treated as earnings, and will not be subject to the £30,000 income tax exemption. However, the £30,000 exemption will be retained, and employees will continue to benefit from unlimited primary NICs exemption for other payments associated with the termination of employment. The changes will take effect from 6 April 2018 (cl 14).

  1. Trading and property allowances

Two separate annual allowances of £1,000 each are introduced for individuals (otherwise than in partnership). Firstly, a ‘trading’ allowance will cover income from trades, professions or vocations, and ‘miscellaneous’ income (under ITTOIA 2005, Pt 5, Ch 8); it will also apply for the purposes of Class 4 NICs. Secondly, a ‘property’ allowance will cover income from property. For either allowance, where receipts are less than £1,000, income and allowable expenses may be ignored. If receipts exceed £1,000, the individual may elect (for a particular tax year) to apply the £1,000 allowance against those receipts, but may not then deduct any other expenses. Any income which attracts rent-a-room relief (ITTOIA 2005, Pt 7, Ch 1) will not be eligible for either allowance. The new allowances take effect from 2017/18 (cl 20, Sch 6).

  1. Corporation tax: carry forward losses

The way in which companies can use brought-forward losses has been reformed, to the extent that those losses arise from 1 April 2017. The provisions take up 117 pages of Finance Bill 2017. In very broad terms, the availability of losses brought forward from an earlier accounting period is enhanced, so that such losses can be used against total profits of the company in the later year. Brought forward losses are also available for group relief in a later period. However, there is a general restriction to the use of carried-forward losses to 50% of a company's profits in excess of £5 million. The losses affected by both the restriction and the relaxation are trading losses, non-trading deficits on loan relationships, management expenses, UK property losses and non-trading losses on intangible fixed assets. The rules will apply to all losses arising on or after 1 April 2017. Losses arising before that date will remain subject to the existing rules and cannot benefit from the increased flexibility, but they will be subject to the restriction on the amount of profit that can be relieved by carried-forward losses (cl 29, Sch 9).

  1. Substantial shareholding exemption

The substantial shareholdings exemption (SSE) provides an exemption from corporation tax for capital gains (and losses) on the disposal of certain shareholdings. For disposals prior to 1 April 2017, if a trading company or group sells a substantial shareholding of another trading company or holding company, any gain (or loss) is generally exempt from corporation tax. The substantial shareholding requirement is satisfied if the vendor company owns at least 10% of the ordinary share capital of the company being sold. For previous disposals, the ownership period is at least twelve months starting no more than two years before the disposal. However, for disposals from 1 April 2017 the qualifying period is twelve months starting not more than six years before the date of the disposal. In addition, under the ‘old’ rules the vendor company has to be either a trading company or a member of a trading group. This requirement is repealed completely. Furthermore, the company being sold has to be a trading company or the holding company of a trading group or subgroup from the beginning of the twelve-month period during which the substantial shareholdings requirement was satisfied until the date of disposal, and immediately afterwards. However, for disposals from 1 April 2017 the requirement that the company satisfies that condition immediately after the transaction is removed where the sale is to an unconnected party.

A new component to the SSE defines a specific class of investors called ‘qualifying institutional investors’. The exemption applies without regard to the nature of the business activities of either the company making the disposal or the company in which it has a substantial shareholding. If they hold at least 80% of the ordinary share capital of a company that is sold, a full exemption will apply. If they hold between 25% and 80% there will be a proportionate reduction in the amount of exemption due. It also has effect for disposals of substantial shareholdings on or after 1 April 2017 (cls 39, 40).

  1. Deemed domicile

Individuals who are not otherwise domiciled in the UK, but who have been resident in the UK for 15 out of the last 20 tax years, will be deemed to be UK domiciled from 6 April 2017. The same will generally apply if they were born in the UK with a domicile of origin in the UK, and then return to the UK after having obtained a domicile of choice elsewhere. The existing inheritance tax (IHT) ‘17 out of 20’ rule is aligned with the new threshold. Individuals deemed to be domiciled in the UK will therefore generally become liable to income tax, capital gains tax (CGT) and IHT on their worldwide income, gains, and estate, subject to transitional protections (including the facility to rebase offshore assets for CGT purposes, and a facility for remittance basis taxpayers to rearrange their overseas mixed funds to allow them to remit clean capital from overseas before income and gains) if certain conditions are satisfied. The new rules will apply from 6 April 2017 (cls 41, 42; Sch 13).

  1. IHT on overseas property representing UK residential property

The scope of IHT is extended by new measures restricting the scope of the ‘excluded property’ provisions, broadly to cover UK residential property held or financially supported by, or through, overseas structures by trustees or individuals domiciled outside the UK. These measures will apply through participation in a close company, trust or overseas partnership, and also in respect of ‘relevant loans’. A new IHTA 1984, Sch A1 broadly treats the value of such interests as not being excluded property for IHT purposes, to the extent that their value is attributable to UK residential property ultimately held by a non-UK-domiciled individual. This IHT extension generally applies from 6 April 2017 (cl 44, Sch 15).

  1. Penalties for ‘enablers’ of defeated tax avoidance schemes

A new penalty is introduced for any person who enables the use of abusive tax avoidance arrangements that are later defeated (ie in the courts or tribunal, or where otherwise counteracted). For this purpose ‘enablers’ include those who design, market or otherwise facilitate avoidance arrangements implemented (as distinct from those who simply advise or become unwittingly involved). The penalty charged will be equal to the amount of consideration (eg fees, commission) received or receivable by an enabler for their role in enabling the tax avoidance arrangements which were defeated. The new penalty will apply to steps taken by an enabler and arrangements entered into on or after the date of Royal Assent to Finance Act 2017 (cl 125, Sch 27).

  1. Offshore non-compliance: requirement to correct

A ‘requirement to correct’ (RTC) applies to taxpayers who have failed to declare the right amount of UK income tax, CGT or IHT, in respect of offshore tax non-compliance subsisting on 6 April 2017. Such taxpayers are required to correct that position on or before 30 September 2018, by providing the appropriate information to HMRC. Taxpayers failing to comply with the RTC face new sanctions. These may include: a tax-geared penalty of between 100% and 200% of the tax not corrected; in serious cases an asset-based penalty (under FA 2015, Sch 22); enhanced penalties (under FA 2015, Sch 21) where assets or funds have been moved to attempt to avoid the RTC; and ‘naming and shaming’ by HMRC; (cl 128, Sch 29).

…there’s more!

The above key measures are by no means an exhaustive list. For example, Finance Bill 2017 also prepares the way for the ‘making tax digital’ revolution with the introduction of new and amended legislation relating to digital record-keeping and reporting requirements for businesses within the charge to income tax (cls 20, 21). It also includes provisions to enable HMRC to make regulations requiring businesses to keep digital records and report digitally for VAT purposes (cl 22).

Subscribers to Bloomsbury Professional’s online service can use the Finance Bill 2017 Tracker to review the Finance Bill 2017 provisions, and follow its progress through Parliament to Royal Assent. They can also get access to a range of expert commentaries on the above issues and more.  To get access to the Bloomsbury Professional online service please go to


Mark McLaughlin CTA (Fellow) ATT (Fellow) TEP is a consultant to professional firms with Mark McLaughlin Associates Ltd ( Mark is also Managing Edit
or of TaxationWeb ( He can also be contacted via Twitter and LinkedIn

Written by Ellie MacKenzie

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