The Chancellor will need to ensure any policies indicate the UK remains an attractive place to do business and is open to investment.
Looking ahead to the Autumn Statement on November 23rd, Michelle Quest, Head of Tax at KPMG in the UK, said:
“This Autumn Statement marks the first major fiscal event since the UK voted to leave the EU. Commentators and the markets alike are waiting with bated breath for the Chancellor to spell out the direction of the country’s fiscal policy and put in place measures that will help the UK economy to seize the opportunities and cope with the turbulence of Brexit.
“Since the EU referendum, expectations are for the UK economy to grow at a much slower pace in the coming years. To ensure economic growth remains positive, the Government needs to indicate a willingness to use fiscal policy to stimulate growth and act to reassure business and consolidate the UK’s position as an attractive place to invest.
“KPMG‘s surveys of clients have consistently determined that companies look for stability, predictability and certainty, both in economic (including tax) and political terms when it comes to deciding where to do business. The UK has typically been one of the most attractive locations but whilst uncertainty over a post-Brexit UK remains, we may find companies more reluctant to invest.
“Unfortunately, the Government has no single magic bullet that can bolster the UK’s attractiveness. From a tax perspective, the recent commitment by Philip Hammond to continue reducing the headline corporation tax rate to 17% by 2020 is a good start – indicating the UK remains an attractive place to do business and is open to investment. However, we would ask that the Government go further by publishing a clear tax roadmap of likely changes ahead.
“KPMG advises tens of thousands of clients around the world, who are desperate for guidance on the stability of investment in the UK. While business was given a ‘Business tax road map’ following the Budget in March, it was difficult to get a real sense of direction from the document. To be fair to the previous Chancellor, with the EU referendum looming at the time, it was probably difficult to say with any kind of certainty what the Government plans for business taxes were to 2020 and beyond.
“With ‘Brexit uncertainty’ now likely to be with us for some time, coupled with the current geo-political volatility, it is even more crucial that business sees a firmer commitment from the Government to a clearly defined path of future tax changes ahead in order to effectively and confidently plan their investment strategies’.”
Robin Walduck, Tax Partner at KPMG in the UK, commented:
“Over the past year, a number of consultations on high-profile business issues have been released. These include the consultation on the deductibility of corporate interest expense (a response to the OECD’s BEPS Action 4), the consultation on corporation tax loss reform, and the proposed reform of the substantial shareholdings exemption. For companies, large and small, expectations are high that the Government’s responses on these proposals will be forthcoming at the Autumn Statement. For financial services in particular, clarity on any knock on effects on industry specific commercial issues will be actively sought."
“Another high-profile consultation on strengthening tax avoidance sanctions and deterrents has generated significant commentary in the business community, particularly the proposal to levy potentially tax-geared penalties on the enablers of tax avoidance schemes which are ultimately defeated. Many interested parties will be hoping for further commentary on developments in the proposals now that the consultation has closed.
“In keeping with the Government’s aim to reinforce the UK as a leader in tech innovation, we may well see announcements designed to further encourage R&D and incentivise spending in this area. Particularly in the wake of the Brexit vote, the Chancellor will need to ensure any policies increase the attractiveness of the UK as a place to undertake R&D, commercialise the results, and support businesses investing in innovation to ensure that they continue to make their mark on the global stage.
The policies that could achieve this are:
Gary Harley, Head of Indirect tax at KPMG UK, said:
“Over the last few years, we have not seen many major indirect tax changes and those we have seen have largely focused on perceived areas of lost revenue, such as the changes in this year’s Budget on overseas sellers and making online sellers joint and severally liable for VAT purposes. As such, we are not expecting a huge amount in this Autumn Statement from an indirect tax perspective given the rates that can be increased have already, and any major VAT changes are likely to be geared around Brexit.
“In terms of rates, Insurance Premium Tax (IPT) was notably left out of the tax lock. However, there have been two recent IPT rises, the last of which only kicked in recently. Therefore, with rates where they are, any further increase seems unlikely.
“There have recently been rumours of a VAT decrease. Rumours invariably circulate on rates and with the VAT lock ruling out an increase, this is the only other alternative. Despite this, the Government would no doubt be careful to keep such a reduction under wraps so the rumours circulating a couple of weeks ago are probably just that.
“Nevertheless, from a strictly VAT perspective there are obvious benefits arising from such a decrease. The financial services sector for example, which is typically unable to recover its VAT in full, would see reduced costs. However, any change is likely to come at a high price. Moving from a 20% rate to 17.5% would cost somewhere in the region of £13-15 billion per year so the Government would need to carefully consider how to manage this.”
On changes to employment taxes, Colin Ben-Nathan, Tax Partner at KPMG in the UK, said:
“Following consultation throughout the summer on a number of employment tax issues we expect that the Government will provide updates in the Autumn Statement and draft legislation in the Finance Bill 2017.
“In particular, further details are expected on the Government's intention to require public sector bodies to apply deduction of PAYE where IR35 applies. The Government has said this change is to apply from April 2017 which is fast approaching. However, we have real concerns about the practicalities of moving to deduction at source - there are a lot of unresolved issues and we just don't see how these can all be addressed by April next year. As a result, we urge the Government to allow more time for consultation and not to rush this through before all the key issues have been properly considered.
“The Government are also proposing to restrict the tax advantages of benefits-in-kind provided through salary sacrifice and flexible benefit arrangements with effect from April 2017. With many employers either asking or about to ask their employees what benefits they want to receive in 2017 we think it is important that the Government clarify the scope of these changes and their timing. Aside from the potential unfairness and the administrative issues arising from an employee on a fixed package being taxed more advantageously than another who is offered a choice, there is also a particular tension regarding flexible benefit arrangements involving “green” company cars. This is implicitly acknowledged in the Government’s parallel consultation on company car tax for ultra-low emission cars where the Government say that around half of all new cars in the UK are purchased by companies and that incentives for employers and employees to choose the cleanest cars in order to benefit from cheaper tax rates are more effective than for private buyers. Maybe the Government will decide to omit company cars from this change but we shall have to wait and see.
“As a firm we are supportive of measures that will increase simplicity and reduce costs for UK employers. Accordingly, we welcome the recent report published by the Office of Tax Simplification on the closer alignment of Income Tax and National Insurance Contributions and we will be interested to see whether, and if so how, the Chancellor intends to make progress in this direction.”
Small and Medium-sized Enterprises (SMEs)
Mike Linter, Head of National Markets Tax at KPMG in the UK, commented:
“The Government may use the Autumn Statement as a chance to announce the next stages in their plans for Making Tax Digital (MTD), which aims to transform the UK tax system by 2020 using digital tools and information to make paying tax easier for individuals, companies and employers.
“The consultation period for the six MTD consultations closed on Monday 7th November and we expect the Government will have received a record number of responses, many of which are likely to express concerns about the timetable for implementation. Smaller businesses are being required to move to MTD before larger businesses and, as such, have called on the Government to relax the timeline to allow more time for them to familiarise themselves with the regime.
“Under the current proposals all but the smallest unincorporated businesses would be required to file information digitally every quarter plus a final trading statement. Clearly the future of tax administration and collection is digital, but until the systems have been properly trialled and tested it seems wrong to be mandating this change in such a short timeframe.
“In particular, at a time of economic uncertainty, this could be hugely disruptive when our smaller businesses should be using their agility and entrepreneurialism to help boost the economy. It therefore seems wrong to be tying them up in unnecessary red tape so putting this requirement on hold for a while would enable our SMEs to get on with doing business.”
Greg Limb, Head of Private Client at KPMG UK, highlighted:
“We would welcome a period of stability for personal taxes with limited changes announced in the Autumn Statement that impact individuals. However, we recognise that there is likely to be change regardless, particularly as the Government has indicated it is committed to rebalancing wealth. With this in mind, the publication of a personal tax roadmap giving clear direction of policy, especially on capital taxes would provide more certainty for transactions, investment decisions, succession plans and also cement the UK as a competitive jurisdiction on the international landscape.
“In terms of rates, headline capital gains tax has only recently been reduced for shareholders from 28% to 20% and it would seem likely that the Government would want to see what impact that reduction has on the investment habits of savers and other company owners before making further changes. Dividend taxation, too, has only recently been reformed and as part of that the rates were increased considerably to what is now perhaps quite a high level. It seems difficult to argue that the Government should seek a further increase at this stage but nonetheless it may be seen as a soft target for raising further revenue in future.
“The Autumn Statement may bring further updates on the Government’s proposals to introduce inheritance tax on all UK residential property, regardless of the ownership structure or the residence of the owner. It is important to ensure that the proposed changes are workable on a practical level before their introduction from April 2017. If necessary, we would hope the Government consider delaying introduction until practical implementation issues have been resolved.
“There may also be further announcements giving greater clarity on the Government’s ongoing efforts to reform the taxation of UK non-domiciled individuals. Again, we would welcome a delay in the introduction of changes to these complex rules until April 2018 to ensure that the changes, especially around offshore trusts, are properly thought through and will work when implemented.
“It is also anticipated that the Government will introduce further rules to tackle perceived tax avoidance, but we strongly urge the need for consistency in the effect of any new rules introduced. For example, the raft of incoming changes to UK residential property are inconsistent in how they impact on various holding structures.
“Finally, we anticipate further information about how Business Investment Relief can be made more attractive in order to encourage foreign investment in the UK. This might include simplifying rules around accessing the relief as well as expanding the scope in order to demonstrate the UK continues to be open to investment.”
Sean Randall, Head of Stamp Taxes at KPMG UK, outlined:
“Stamp duty rules have been used to drive behavioural change with regard to residential property over recent years. Will this trend continue under the new Chancellor? We wouldn’t bet against it. In the meantime, we expect to see a number announcements, all of which are driven by the consequences of previous changes.
“Firstly, we are likely to see an increase in the ‘super’ 15 per cent rate given it no longer deters individuals enveloping high-value dwellings after the higher residential rates were introduced early this year.
“Secondly, the Chancellor might also announce an end to the rule that applies the commercial rates (0-5 per cent) to the whole price for mixed (residential and commercial) transactions. Instead, both sets of rates will likely apply pro rata akin to the system used for property transactions in Scotland.
“We also anticipate amendments to the anti-enveloping rules including the ‘super’ 15 per cent rate and annual tax on enveloped dwellings in order to help private companies offer co-ownership schemes for home purchases.
“Finally, we are expecting the Chancellor to announce an exemption from the higher residential rates for purchases of private rented sector investments.”
David Fairs, Pensions Partner at KPMG in the UK, said:
“We are not expecting a large scale change to pension tax in the way that was rumoured in the run up to the March Budget. The tapered Annual Allowance has been causing huge complexity and cost for business where there are significant numbers of employees whose base pay is above £70-80,000pa as it’s impossible for employees and employers to work out how much they can pay into pensions until the year end.
“Paradoxically, those who have an Annual Allowance of £40,000 (typically those who earn up to £80,000pa) couldn’t possibly afford to put that much money into pensions, whereas those that might have enough disposable income to think of doing that (those earning over £210,000pa) have an Annual Allowance of just £10,000pa.
“We might well see removal of the tapered allowance but with that would come a much lower Annual Allowance – perhaps £20,000 for everyone.
“Companies with defined benefit schemes have seen significantly higher deficits and the cost of future benefits increasing by 30-35%. We might see some initiative to reduce the cost burden on those schemes, otherwise we could see those few defined benefit schemes not yet closed to future accrual doing so.”
For further information please contact:
Jess Liebmann, KPMG Corporate Communications
T: 0207 311 3245
M: 07551 135 778
KPMG Press office Tel: +44 (0) 207 694 8773
KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff. The UK firm recorded a revenue of £1.96 billion in the year ended September 2015. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 174,000 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.
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