This Autumn Statement is the last major economic event of the Government before the General Election next year so what does its content tell us from a tax perspective?
Major policy announcements – including on the NHS and roads – had been made in the days running up to the Autumn Statement. This was followed up by a VAT exemption for hospices and search and rescue and air ambulance charities.
The Autumn Statement has a clear focus on science and innovation with increases in R&D tax relief for both SMEs and large companies. There will be a consultation in early 2015 on the difficulties that smaller companies face when claiming R&D tax credits.
Companies will have the employers’ NIC abolished up to the upper earnings limit for apprentices aged under 25 from April 2016. Together with the increase in personal allowances and the higher rate threshold this will help individuals in work.
Improving and helping savings is another key area of the autumn statement. The changes to the taxation of pensions, and in particular the abolition of tax on pension pots inherited on the death of an individual under 75 means that pensions plans become a good vehicle to pass wealth down the generations. In addition, ISAs will be able to be passed to a spouse or civil partner on death with the spouse/civil partner retaining the tax exempt status of the ISA investments. The result of these changes is that ISAs may become a genuine and real alternative to saving through a pension scheme. In particular after people turn 75, ISAs become significantly more attractive which might lead to people deliberately channelling their savings away from pensions and into ISAs.
Other tax relieving measures include reforms to the oil and gas regime to help investment and production. Details are to be announced tomorrow (4 December). There is also an abolition of air passenger duty from next May for children under 12, and under 16s in 2016.
As the Autumn Statement was announced as tightening the overall government finances, this means that any tax giveaways are more than offset by additional tax raising measures. The Government will consult on further measures aimed at reducing avoidance schemes, including new penalties on arrangements caught by the general anti-abuse rule and imposing additional financial costs, compliance and reporting requirements on repeat users of known avoidance schemes.
Particularly hit this year is the City, with restrictions on the use of banking losses incurred in the financial crisis. This will increase significantly the level of corporation tax paid by banks in the future. This is the measure which raises the most tax for the Government out of all the changes announced today. Also hit are private equity investment managers with a measure to ensure that annual management fees are charged to income tax.
Another group of people which are targeted are foreign individuals and their investments. The charge for non-domicilied individuals to use the remittance basis of taxation is increased for long term residents. In addition, their investments in residential property will be taxed more heavily, with increases in the annual charge on residential property worth more than £2m held by corporates and the introduction of a new capital gains tax on non-residents holding residential property. In addition the substantial changes to residential SDLT, removing the slab basis of taxation, will cause higher tax to be paid on acquisitions of property worth broadly more than £1m. However the SDLT changes will reduce the tax on 98% of homes purchased.
Another area of new anti-avoidance measures are focused on multinationals with a new 25% tax charge on profits artificially diverted offshore. There is currently little information on how this will be implemented but as the rate is higher than the current 21% corporation tax rate it will significantly impede tax planning of this type. However there is likely to be concerns around where the red lines are drawn and whether commercial structures could be caught. Country by country reporting of tax matters is due to be brought in with effect from 1 January 2016 and new rules on hybrid structures from 1 January 2017.
What we did not see announced was a review of RTI. The introduction of real time reporting of PAYE, as well as supporting the operation of the universal credit, was intended to improve the operation of PAYE and to reduce the administration for employers, employees, agents and HMRC. The implementation cost for business is far in excess of HMRC’s estimates and HMRC has not amended its processes to maximise the benefits of this new system. In view of the ongoing difficulties with processing and meeting the “on or before” requirement, it is disappointing that the Chancellor has not announced a review of RTI and further investment to solve the issue.
Also, whilst we know that the Government has “accepted and will further consider” 51 (out of 58) of the recommendations in the OTS’s report on the competitiveness of the UK tax administration, it is disappointing not to have more detail. More information will be made available “in due course”: we may know next week whether this includes any measures for Finance Bill 2015.
In summary there were (small) tax give-aways for most individual taxpayers, families flying to overseas holidays and most home movers. SMEs have also been a beneficiary with changes to business rates, increased R&D tax credits and additional help with exports. Tax rises have been focused on the city, foreigners and multinational companies. An Autumn Statement focusing on fairness and rebalancing the economy? Or perhaps one with a view to the forthcoming general election.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.