The Chancellor, George Osborne, will deliver his Autumn Statement on 3 December. With an election next May, Chris Morgan, head of tax policy at KPMG in the UK, ponders what the statement might contain:
“With the election looming, this year’s Autumn Statement is bound to be a highly political occasion. Any ‘goodies’ held out for voters will surely be timed to take effect after May 2015 as there is little incentive to provide any giveaways ahead of polling day. Equally the Chancellor will need to be careful on the ‘bad news’ regarding further austerity and cuts, showing he’s tough in order to satisfy the Tory heartland but not so tough as to alienate those swing voters his party is trying to woo.
“That said, there are a number of tax measures that have already been trailed, not least measures to address international tax rules, especially targeting multinational technology companies, and a possible IHT exemption for emergency service personnel. Doubtless the Chancellor will also have some tax surprises to unveil on the day.”
The most significant tax measures that have already been trailed are summarised below, and the full list is available here.
Update on government’s response to the Office of Tax Simplification’s report on the competitiveness of the UK
Last December the Chancellor asked the Office of Tax Simplification (‘OTS’) to carry out a review of what the government can do to further improve the competitiveness of the UK tax administration. The OTS published its final report in October this year which ran to over 100 pages and contained 10 key recommendations aimed at improving the UK’s competitiveness with most focused on improving the time businesses take to comply with their tax responsibilities. In the Autumn Statement the government will respond to that report so there may be measures unveiled aimed at further improving the UK’s tax competitiveness.
Chris Morgan commented: “Our clients tell us that improving the competitiveness of the UK’s tax system requires creating stability and greater simplicity. In the short term these are not necessarily compatible and stability tends to trump simplicity. Measures designed to simplify the UK tax regime by reducing the time and cost of compliance seem on the face of it to be a no-brainer. However, the issue is this often involves abolishing specific tax reliefs, which is usually met with howls of protest by those who are adversely affected. So although simplification is to be desired, getting there inevitably produces winners and losers.
“We think it’s important that the government should carefully evaluate the report’s major suggestions, taking into account previous discussions on similar proposals, before committing to action. In particular, we believe that any move to replace capital allowances with tax relief for accounts depreciation should not go ahead without full consultation.”
“More broadly, we think there is a strong case for widening the OTS’s ambit so that it can review new legislation for simplification.”
International tax and anti-avoidance measures
At the Conservative Party conference, the Chancellor announced that he planned to introduce measures designed to implement the changes to international tax rules recommended by the OECD as part of its “Base Erosion and Profit Shifting” (‘BEPs’) project. The Chancellor also signalled particularly strongly that he would be looking at technology companies operating in the UK. One specific area where we expect to see more details is hybrid mismatches where the government has said it will publish a consultation on the implementation of rules to prevent them in the Autumn Statement.
Chris Morgan said: “There will undoubtedly be a raft of targeted measures designed to crackdown on what the government sees as unacceptable tax avoidance. And we can expect to see wider-ranging changes to UK legislation to bring our rules into line with the recommendations emerging from the OECD’s ‘BEPs’ project. The Chancellor has clearly signalled that he has overseas technology companies operating in the UK firmly in his sights. This suggests there may be a tightening of the definition of a permanent establishment so as to include, say, a significant marketing presence or sophisticated warehousing. Another possibility could be conduit type rules to prevent royalties ending up in low taxed countries. However any changes will have to respect both EU law and our international treaties so the Chancellor does not have an entirely free hand.”
Fiscal Review of the Oil and Gas Regime
The government has called for evidence to explore how the tax regime can continue to encourage investment in the North Sea and help maximise the country’s oil and gas resources for the UK, whilst ensuring the nation continues to receive a fair share of profits. This is a wide-ranging review of all key elements of the regime with the government’s aim being to set a direction of travel for the long term that helps cement stability and certainty. Interim conclusions will be published at the Autumn Statement.
Chris Morgan said: “The Autumn Statement will be a big day for those in the Oil and Gas industry as the government will publish interim findings of its wide ranging fiscal review of the industry. There needs to be a careful balancing act to ensure that the tax regime makes it economical to exploit the North Sea while simultaneously raising a fair amount of tax from our natural resources. We neither want to kill the golden goose or give away the family silver. The industry will also be looking for certainty and stability going forward which are critical to enable investment decisions to be made.”
Personal tax measures: Changes to Principal Private Residence Relief rules and IHT exemption for emergency services personnel?
Various consultations have been running on inheritance tax (‘IHT’) and capital gains tax (‘CGT’) including IHT exemption for emergency services personnel, amendments to CGT rules for non-residents and simplifying rules on trusts.
In particular, over the summer the government has been consulting on proposals to change Principal Private Residence (PPR) relief if more than one residence is owned. PPR currently exempts individuals from Capital Gains Tax (CGT) on the disposal of their main residence. The consultation proposes the removal of the ability for taxpayers to elect which residence is their main residence. This would be replaced by the determination of main residence based on the balance of various factors or the introduction of a definitive test. A further proposal could make PPR relief available to non-UK residents in certain circumstances.
Chris Morgan commented: “Changes to PPR relief could affect second home owners, buy to let landlords and unmarried couples who keep two homes between them. Any changes to the rules are likely to be based on defining what constitutes a ‘home’ in reality to prevent perceived avoidance with people changing their elections under current rules to designate their main residence to provide the best tax outcome.”
“The government has been consulting on its wish to extend the Inheritance Tax exemption for armed forces personnel who die on active service to all emergency service personnel who die in the line of duty, or whose death is hastened by injury incurred in the line of duty. Such an exemption is already available to members of the armed forces who lose their lives on active service or as a result of injuries sustained and the government is, rightly in our view, keen to extend this to other emergency services personnel. We would expect to see details of how this exemption will work announced in the Autumn Statement.
“Additionally there will be details announced to changes already in train for the CGT rules for non-residents and on how to simplify the rules around IHT on trusts.”
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Margot Cowhig, KPMG Corporate Communications
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KPMG Press Office: 0207 694 8773
Notes to editors:
KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 11,500 partners and staff. The UK firm recorded a turnover of £1.8 billion in the year ended September 2013. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 155,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.