Before the event it was widely reported that the Autumn Statement would be aimed at helping people who are “just about managing”. Ironic, then, that the proposals are plainly those of a Chancellor who is “just about managing” to plot a course between the Scylla of the deterioration in Government finances now forecast by the Office for Budget Responsibility and the Charybdis of the need to keep taxes low to stimulate growth. Or, for those of a less classical bent, he’s caught between a rock and a hard place.
So what’s he done? Well, not a lot really: or, at least, the effects of what he has done for owner-managed businesses, employees and private clients pretty much pales into insignificance compared with the promised investment into infrastructure projects. It would be nice to think that some of the benefits of that spending would trickle down to smaller businesses: we shall see.
On the tax front, personal allowances and the basic rate band have both gone up a bit, on target for a personal allowance of £12,500 and higher-rate threshold of £50,000 by 2020. The starting-point for employers’ and employees’ National Insurance Contributions has been aligned – it makes no difference to employees and practically none to employers, but removes an anomaly and makes the computation a little simpler. Abolition of Class 2 NIC from April 2018 is confirmed, further simplifying NIC for the self-employed. The same date will see the imposition of NICs on termination payments in excess of £30,000.
Levelling the playing field figures prominently. For example, the tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, Cycle to Work and ultra-low emission cars. This will mean that employees swapping salary for benefits will pay the same tax as individuals who buy them out of their post-tax income. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021. At the same time, the government will consider how benefits in kind are valued for tax purposes. We don’t for a moment imagine the result to be that the tax charge on benefits will be reduced (though in fact, it really ought to be, especially for employer-provided cars, where the taxable amount can easily be a multiple of the real commercial value of the benefit provided).
Still on the “levelling playing field” theme, the rules on quasi-employees operating through limited companies or similar intermediaries (that is, the infamous “IR35” rules) are to be tightened up. In the public sector responsibility for operating the rules, and paying the correct tax, will move from the worker’s company to the body paying the worker’s company, on the basis that “the government believes public sector bodies have a duty to ensure that those who work for them pay the right amount of tax.” This reform is said to “help to tackle the high levels of non-compliance with the current rules and means that those working in a similar way to employees in the public sector will pay the same taxes as employees.” At present the change is limited to the public sector. We wouldn’t be surprised to see it made universal at some future date.
As proposed previously, rules will be introduced to limit the tax deductions that large groups can claim for their UK interest expenses from April 2017. These rules will limit deductions where a group has net interest expenses of more than £2 million, net interest expenses exceed 30% of UK taxable earnings and the group’s net interest to earnings ratio in the UK exceeds that of the worldwide group. It will thus apply only to sizable businesses and even then not to purely domestic ones. Similarly, the proposals previously announced will be carried through to restrict the amount of profit that can be offset by carried-forward losses to 50% from April 2017. The restriction will be subject to a £5 million allowance for each standalone company or group.
Levelling the playing field between tenants and landlords (allegedly) there is a commitment to outlaw the charging of letting agents’ fees to tenants, apparently “to improve competition in the private rental market and give renters greater clarity and control over what they will pay.” We’re not sure how well that one has been thought through – seems to us that one way or another the costs will inevitably be passed on to tenants, if only in increased rents as landlords seek to recoup their expenditure.
The previously-announced reforms to the taxation of non-domiciled individuals will proceed. This is on the premise that “individuals who live in the UK and make use of public services should pay their fair share” (a hackneyed phrase trotted out only as a substitute for argument or thoughtful analysis) “of tax.” Accordingly, from April 2017, non-domiciled individuals will be deemed UK-domiciled for tax purposes if they have been UK resident for 15 of the past 20 years, or if they were born in the UK with a UK domicile of origin, with special rules for offshore trusts. From the same date IHT will be charged on UK residential property when it is held indirectly by a non-domiciled individual through an offshore structure, such as a company or a trust. On the bright side, the rules for Business Investment Relief (“BIR”) will change from April 2017 to make it easier for non-domiciled individuals who are taxed on the remittance basis to bring offshore money into the UK for the purpose of investing in UK businesses and the government will continue to consider further improvements to the rules for the scheme to attract more capital investment in British businesses by non-domiciled individuals.
On the avoidance front, the tax advantages linked to shares awarded under the “Employee Shareholder Status” scheme will be abolished for arrangements entered into on, or after, 1 December 2016. The status itself will be closed to new arrangements at the next legislative opportunity. Seems that the evidence suggests that the principal use of the scheme has been for unacceptable tax planning instead of supporting a more flexible workforce as intended. Who’d have thought such a thing could happen?
Two slightly worrying developments. First, Budget 2016 announced changes to tackle the use of disguised remuneration schemes by employers and employees. It’s now proposed to “extend the scope of these changes to tackle the use of disguised remuneration avoidance schemes by the self-employed” so as to “ensure that self-employed users of these schemes pay their fair share of tax and National Insurance.” It’s not clear what perceived abuse HMRC are seeking to counter here: after all, if you’re self-employed you don’t have “remuneration” for tax purposes, disguised or other. We’re nervous as to what HMRC have in mind: watch this space. At the same time, tax relief is to be denied for an employer’s contributions to disguised remuneration schemes unless tax and NICs are paid within a specified period.
The second troublesome development is the confirmation that HMRC are to proceed with the introduction of a new penalty for any person who has “enabled” another person or business to use a tax avoidance arrangement that is later defeated by HMRC. At present, “enabling” is far too widely and vaguely defined for comfort, as is “tax avoidance arrangement” come to that. We, along with others, will be aiming to ensure that the new rules do not compromise the ability to advise on legitimate tax planning. At the same time, it’s proposed that the law will be changed so that when considering penalties for any person or business that uses “tax avoidance arrangements” it will no longer be possible to rely on the defence of having taken and relied upon professional advice unless that advice is “independent”. Ours is: not everyone can say as much!
Finally, some good news for advisers. This Autumn Statement will be the Chancellor’s last: not because he is resigning but because the ridiculous charade of announcing tax and fiscal changes biannually is to end. Henceforth, there will be an Autumn Budget where the proposals for the following tax year will be exposed in sufficient time to allow for proper examination, consultation and parliamentary scrutiny before implementation from the following April and where the Finance Bill for a year will actually pass into law before the start of the year rather than half-way through it as now. This, at least, is a change which we, and we suspect all advisers, can unreservedly welcome.
Our website also has a more comprehensive listing of measures in the Statement. And to discuss how the changes may affect you or your business personally, please get in touch with your usual BKL contact.