Second Finance Bill to legislate for pensions advice exemption and company car tax bands

Parliament

A second Finance Bill 2017 has been introduced into Parliament, which includes the introduction of an income tax exemption for the first £500 of employer-arranged pensions advice, company car tax bands, and the retrospective application of the money purchase annual allowance (MPAA).

A number of measures were dropped from the Finance Bill 2017 after the snap general election was called on 8 June 2017 in order to ease its passage through Parliament. This included the reduction of the MPAA from £10,000 to £4,000, as well as the pensions advice tax exemption. At the time, Jane Ellison, former financial secretary to the Treasury, confirmed that the provisions withdrawn from the bill would be legislated for at the earliest opportunity at the start of the next Parliament.

The slimmed down Finance Bill received Royal Assent on 27 April 2017.

The tax exemption for £500-worth of employer-arranged pensions advice replaces the current £150 cap. The new provision also broadens the scope of advice available to include general financial and tax issues relating to pensions. The new exemption would apply retrospectively from 6 April 2017.

The reduction of the MPAA from £10,000 to £4,000 will also be effective from 6 April 2017. The reduction was first announced in the Autumn Statement 2016 by Chancellor Philip Hammond. This restricts the tax-relieved amount that individuals who have accessed their pension savings through the pension freedoms can contribute to their defined contribution (DC) pensions. In March 2017, the government confirmed that no transitional arrangements would be put in place, and that the MPAA reduction would apply to those who have accessed, or will access, their pensions flexibly, regardless of when the decision to make use of the freedoms occurred.

The new Finance Bill also legislates for new tax bands for ultra-low emission vehicles (ULEVs) for the purposes of calculating the taxable benefit of company cars. The percentage for cars that emit 0-50g/km of CO2 will be based upon carbon dioxide emissions and the distance the car can travel in pure electric mode – its electric range. The percentage for cars that emit 51g/km of CO2 or more will continue to be based on CO2 emissions. These changes result in graduated bands for cars with CO2 emissions of 50g/km of CO2 or below, as well as a band for cars with zero emissions. These changes will come into effect from the 2020-2021 tax year.

A date for making good on benefits in kind (BIKs) that are not accounted for in real time through pay as you earn (PAYE) is among the other measures included in the second bill. This relates to a payment made by an employee in return for a BIK, which can reduce the value of the BIK to zero. The date of 6 July has been set for BIKs that give rise to a tax liability for the 2017-2018 tax year onwards. This measure does not impact existing legislation or dates for making good on BIKs that are payrolled.

The second Finance Bill 2017 was introduced to Parliament on 8 September 2017. A second reading of the bill in the House of Commons is scheduled for 12 September 2017.

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Mel Stride, financial secretary to the Treasury and paymaster general, said: “A fair tax system is a key part of our plan to build a fairer society. The UK is a world leader in tackling tax avoidance and evasion, but we must continue to take action to ensure everyone pays their fair share. The Finance Bill will allow us to do just that by preventing companies and individuals from using complicated tax structures to avoid paying the tax they owe, and penalising people that help them to do it.”

Lauren Pamma, head of fleet consultancy at Lex Autolease, said: “It’s good to see the 11 company car tax bands for ultra-low emission vehicles, first introduced in last year’s Autumn Statement, included in the new Finance Bill. It provides clarity for fleets and makes switching to electric vehicles much more appealing in the longer term.”