L-Day 2023

Government publishes draft legislation for Finance Bill 2024 and tax related consultations

Draft tax legislation published

‘Legislation Day’ (‘L-Day’) took place on 18 July 2023, with the Government publishing draft legislation for Finance Bill 2023-2024 (commonly referred to as Finance Bill 2024), together with explanatory notes, new consultations and responses to several closed consultations. These publications had been previously trailed and include draft legislation for consultation on a proposed new single Research & Development (R&D) tax relief scheme; reforms to creative sector reliefs; draft legislation amending the recently enacted UK Pillar Two rules and providing detail on the UK undertaxed profits rule; and changes to the data HMRC collects from taxpayers. This article provides an overview of what was announced.

You can find detailed commentary on the following key L-Day announcements in this edition of Tax Matters Digest:

In addition to the key announcements noted above, there were a number of other points of note, as set out below.

Changes to the data HMRC collect from employers

Draft amendments to ITEPA 2003 have been published which, if enacted, would enable HMRC to make regulations requiring employers to provide more detailed information on employee hours worked via Real Time Information PAYE reporting. It was previously thought that these changes could apply from 2024/25. However, the L-day documents confirm the proposed new reporting obligations would apply from 2025/26 at the earliest, albeit there is currently no indication of the actual start date or exactly what additional data will be required. Employers should use this additional time to review their Human Resource Information System (HRIS) and payroll systems to consider what changes are necessary to prepare for the new requirements (see our earlier article for further details of the relevant consultation and steps employers could consider).

Employee Ownership Trusts (EOTs) and Employee Benefit Trusts (EBTs)

HMRC have published a consultation on the tax regimes for EOTs (trusts that meet certain statutory conditions and hold a controlling interest for the benefit of a company’s employees) and EBTs (trusts established to provide employee benefits such as healthcare, shares, and group life cover). HMRC are seeking views on proposals to ensure that: firstly, Capital Gains Tax relief for share disposals to an EOT remains appropriately targeted; secondly, funding contributions to EOTs are not taxed as distributions; and finally, the conditions that must be met for EOT controlled companies to pay tax free employee bonuses are not unnecessarily restrictive. Views are also sought on proposals to ensure that Inheritance Tax reliefs for EBTs are appropriately targeted, and on improving the tax treatment of EBTs more generally. The consultation closes on 25 September 2023.

Energy Security Investment Mechanism (ESIM)

The Government has published a discussion note for consultation on the proposed introduction of the Energy Security Investment Mechanism (ESIM). The ESIM, announced on 9 June 2023, is a price threshold set at $71.40 per barrel of oil and £0.54 per therm of gas. It is proposed that if average oil and gas prices are both at or below the ESIM price threshold for two consecutive quarters then legislation will implement the ESIM and disapply the Energy Profits Levy (EPL) permanently. The consultation is open until 1 September 2023.

Draft legislation on REITs

Draft legislation has been published to make a number of amendments to the rules on Real Estate Investment Trusts (REITs) including changes to some of the conditions that determine whether a company qualifies as a REIT.

Tonnage tax legislation

Draft legislation has been published in respect of changes to the tonnage tax regime. Firstly, from 1 April 2024 ship management companies will be able to qualify for the regime. At present, entry to the tonnage tax regime is restricted to companies who operate qualifying ships (which are strategically and commercially managed in the UK). This change allows more flexibility for groups to elect in to the tonnage tax regime. In addition, for leases entered into from 1 April 2024 the limits on qualifying capital expenditure that tonnage tax companies can claim capital allowances on will be increased, with the overall limit rising from £80 million to £200 million. These changes were first announced in Spring Budget 2023.

Agricultural property relief and woodlands relief

As expected, inheritance tax legislation will be amended to restrict the scope of agricultural property relief and woodlands relief to property located in the UK from 6 April 2024. From that date, property located in the Channel Islands, Isle of Man and the European Economic Area (EEA) will be treated in the same way as property located outside the UK and will not be eligible for the reliefs.

The full list of draft legislation for Finance Bill 2024 is published on the gov.UK website and the draft clauses are open for consultation until 12 September 2023.