Shashi Prashad, Enterprise Tax Director, reflects on the 2016 Autumn Statement.
The theme of Wednesday’s Autumn Statement was “keep calm and carry on” in light of continued uncertainty surrounding UK and overseas businesses. It appeared that the Chancellor used his Autumn Statement to seek to provide businesses with some level of stability and certainty along with confirmation of things we already knew were in the Government’s pipeline. With this in mind, there were no major tax reforms. Instead, the focus was on providing more funding to infrastructure and driving innovation and productivity.
Perhaps the most exciting announcement was that this Autumn Statement was Philip Hammond’s first and last –the Spring Budget and Autumn Statement will now be swapped around.
Whilst there were limited overall changes to the tax regime compared to other years, there were a number of headline changes which will affect privately owned businesses of all sizes. Some of the more relevant changes which will affect many of my clients and which we are already talking to them about include:
The Government reaffirmed its commitment to the business tax roadmap which means that the rate of corporation tax will be reduced to 17% by 2020, with the UK continuing to have the lowest corporation tax rate in the G20. This is fantastic news for UK businesses, and along with a number of other favourable tax exemptions, the UK continues to be a very competitive jurisdiction to use as a head office for a global business.
New rules on interest deductions will be applicable from April 2017 where, in many circumstances, tax relief on net interest expense above £2million could be restricted to 30% of ‘tax EBITDA’. This is potentially a significant impact for highly geared companies.
Rules to impose a 50% restriction on the amount of profit that can be offset with carried forward corporate tax losses will take effect from 1 April 2017, subject to a £5 million allowance for each standalone company or group. Although, tax relief for brought forward losses may be restricted, in exchange there should be greater flexibility in offsetting these losses against future company or group member profits. This is long overdue in my opinion and very much welcomed.
There was a surprise when the Chancellor noted that at Budget 2017 the Government will consult on bringing in all non-resident companies receiving taxable income from the UK into the corporate tax regime. This could bring non-resident landlord companies currently subject to income tax within the corporation tax regime and as such the new interest deductibility rules and loss relief rules are likely to apply to these companies as well.
In my view, the Chancellor is obviously focused on making the UK a more competitive, stable and certain tax environment for businesses - not just through re-confirming the measures above - but also through continued investment in infrastructure, R&D and productivity programmes.
Employees who benefit from salary sacrifice arrangements could be liable to additional income tax and National Insurance contributions as this method of remuneration is being removed. However pensions, child care, workplace nurseries, low emission cars and cycle to work schemes will be exempt from this amendment.
The tax advantages linked to shares awarded under Employee Shareholder Status (ESS) will be abolished for arrangements entered into on, or after, 1 December 2016. Where an employee is already part of an ESS arrangement, it is understood that the tax advantage will be preserved post-1 December 2016.The Employers and Employees National Insurance threshold will be aligned from April 2017 making the payment of National Insurance simpler, albeit more expensive, for employers.
It is understandable that the government wishes to close down on arrangements that it perceives as being misused. However, we continue to encourage the government to look at introducing alternative reliefs that allow such companies to incentivise their workforce in a tax efficient manner and support the flexibility in the workforce.
In particular, the Chancellor confirmed that the personal allowance for individuals would be raised to £11,500 in April 2017 rising further to £12,500 by 2020. As well as increases to the personal allowance it was also announced that the higher rate threshold would rise £45,000 in April 2017 rising to £50,000 by 2020.
The national living wage will also be increased from £7.20 to £7.50 from April 2017.
The announcements additionally confirm the Chancellor’s intention to proceed with the reform of the taxation of non-UK domiciled individuals from 6 April 2017.
It appears that the Chancellor’s announcements form a friendly and positive start, but there is still a long way to go. If the announcements above could affect you or your business, please get in contact so we can help you to understand the applicability of these rules.