Following yesterday’s Autumn Statement, we have set out below a summary of some of the main announcements. Further details on various measures are expected to be available on 5 December 2016 when the draft legislation for the Finance Bill 2017 is scheduled to be published.
If you would like to discuss the impact of any of the changes, please get in touch.
- The Chancellor confirmed the Government’s commitment to the business tax road map (published at Budget 2016), which sets out plans for major business taxes to 2020 and beyond. This includes cutting the rate of corporation tax to 17% by 2020.
- The Government confirmed that, with effect from April 2017, it will limit the corporation tax deductions available for interest expenses to 30% of UK taxable earnings. This will only apply where a group has net interest expense exceeding £2 million and a net interest to earnings ratio in the UK that exceeds that of the worldwide group. Provisions will be included to protect investment in public benefit infrastructure. Such provisions will be wider than those originally proposed. The rules will apply to banking and insurance companies in the same way as to companies in other sectors. We expect more detail to be available when the draft legislation is published on 5 December.
- Following a consultation earlier this year, the Government will restrict the amount of profit that can be offset by carried forward losses (for corporation tax purposes) to 50% from April 2017, but will allow greater flexibility on the types of profit that can be relieved by losses incurred after that date. A £5 million allowance will be available for each standalone company or group. The amount of profits that banks can offset with losses incurred prior to April 2015 will continue to be restricted to 25%.
- The Government will consult at Budget 2017 on whether to bring all non-resident companies receiving taxable income in the UK within the corporation tax regime. No further details on the scope of the consultation are currently available.
- Following a consultation earlier this year, changes will be made to the substantial shareholdings exemption with effect from April 2017. The aim of the changes will be to:
- simplify the rules;
- remove the requirement for the disposing company to have been a trading company (or member of a trading group); and
- provide a more comprehensive exemption for companies owned by qualifying institutional investors.
- The Government will consult on changes to clarify and improve certain aspects of partnership taxation to ensure profit allocations are fairly calculated for tax purposes.
- Specific provisions will be added to the Patent Box rules by the Finance Bill 2017 to cover the situation where R&D is undertaken collaboratively by two or more companies under a ‘cost sharing arrangement’. This will ensure that such companies are neither penalised nor gain an advantage as a result of organising their R&D in this way. The changes will take effect for accounting periods commencing on or after 1 April 2017.
- As announced at Budget 2016, and following consultation, the Government proposes to include legislation in the Finance Bill 2017 to clarify the rules on capital allowances, chargeable gains and investments by co-ownership authorised contractual schemes (“CoACS”) in offshore funds, as well as information requirements on the operators of CoACS.
- Minor changes will be made to the hybrid and other mismatches legislation to ensure that it operates as intended. These changes will take effect from 1 January 2017 and further detail is expected on 5 December 2016.
- The Government will examine ways to build on the introduction of the ‘above the line’ R&D tax credit, with a view to making the UK an even more competitive place to do R&D.
- The Government has asked the Office of Tax Simplification to carry out reviews on aspects of the VAT system and on stamp duty on share transactions.
- From 1 April 2017, the Government will introduce a new 16.5% VAT flat rate for businesses with limited costs (“limited cost traders”), to stop such traders using a lower flat rate. A “limited cost trader” is one whose VAT inclusive expenditure on goods is either:
- less than 2% of their VAT inclusive turnover in a prescribed accounting period; or
- greater than 2% of their VAT inclusive turnover but less than £1,000 per annum.
Anti-forestalling measures have been introduced with effect from 23 November 2016. Draft secondary legislation will be published on 5 December 2016 and an online tool will be available to help businesses decide whether they should use the new rate.
Employment / Employee incentives
- The income tax and capital gains tax advantages available in relation to employee shareholder shares will be abolished for arrangements entered into on or after 1 December 2016. Where an individual has received independent legal advice regarding entering into an employee shareholder arrangement before 1.30pm on 23 November 2016, that individual will be able to enter into such an arrangement on or before 2 December 2016. Although employee shareholder status itself currently remains available from an employment law perspective (without the tax advantages), it will be closed to new arrangements at the next legislative opportunity.
- As announced at Budget 2016, from April 2018, termination payments exceeding £30,000, which are subject to income tax, will also be subject to employer national insurance contributions, but will not be subject to employee national insurance contributions. Termination payments up to £30,000 will still be exempt from income tax and employee and employer national insurance. Following a consultation earlier this year, income tax and national insurance contributions will now only be applied to the equivalent of an employee’s basic pay, for payments in lieu of notice
- With effect from April 2017, the Government will introduce the Office of Tax Simplification’s recommendation that the national insurance employer and employee thresholds should be aligned. However, the Chancellor has decided that now is not the right time to move the calculation of employee national insurance to an annual, cumulative and aggregated basis. The proposed reform of employer national insurance is being considered and kept under review. The Government will also look at how it can ensure that the tax treatment of different ways of working and different forms of employee remuneration is “fair, sustainable and efficient”.
- The Government has confirmed that, with effect from April 2017, an employee who wants to ‘make good’ on a non-payrolled benefit in kind will need to do so by 6 July in the following tax year.
- Following consultation, the Government confirmed that it will reform the off-payroll working rules in the public sector with effect from April 2017 by moving the responsibility for operating them to the body paying the worker’s company.
- With effect from April 2017, the Government will phase out the tax and national insurance advantages of salary sacrifice arrangements (subject to exceptions for pensions, childcare, Cycle to Work and ultra-low emission cars). 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.
- The Government will be examining the valuation of benefits in kind for tax purposes at Budget 2017.
- As announced at Budget 2016, the Government will simplify the process for applying and agreeing PAYE settlement agreements, with effect from the 2018/19 tax year.
- The Government confirmed that it will raise the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of the Parliament.
- The Government confirmed that it will proceed with its previously announced changes to the taxation of long term resident non-UK domiciled individuals, non UK-domiciled individuals who were born in the UK with a UK domicile of origin and UK residential property held indirectly by non-domiciled individuals. The rules for Business Investment Relief will also be amended, with further improvements to the rules in order to attract more capital investment in British businesses to be considered. These changes will all take effect from April 2017.
- The Government confirmed that it will introduce the new £1,000 income tax allowances for trading and property income announced at Budget 2016.
- Currently the money purchase annual allowance is triggered when an individual flexibly accesses their benefits from a defined contribution arrangement and it restricts the amount of tax relieved saving that can be made in that arrangement. The Government is proposing to reduce the money purchase annual allowance from £10,000 to £4,000 from April 2017 and has published a consultation on this.
- The Government is to shortly publish a consultation on options to tackle pension scams, including banning cold calling in relation to pensions, giving firms greater powers to block suspicious transfers and making it harder for scammers to abuse “small self-administered schemes”.
- The Government is to make changes regarding foreign pensions, including in relation to their UK tax treatment, and is also to close specialist schemes for those employed abroad (so-called “section 615” schemes) to new saving.
Anti-avoidance and BEPS
- Following a consultation earlier this year, the Government will introduce a penalty for any person enabling another person or business to use a tax avoidance arrangement that is later defeated by HMRC.
- The Government will legislate in the Finance Bill 2017 to introduce a new penalty for participating in VAT fraud. The penalty will apply to businesses and company officers when they knew or should have known that their transactions were connected with VAT fraud. The new penalty will be a fixed rate penalty of 30%. This follows a consultation which closed earlier this month. The changes will be take effect from Royal Assent to the Finance Bill 2017.
- Following a consultation earlier this year, the Government will also legislate in the Finance Bill 2017 to strengthen the regime for disclosure of avoidance of indirect tax. Scheme promoters will be made primarily responsible for disclosing schemes to HMRC and the scope of the regime will be extended to include all indirect taxes. The changes will have effect from 1 September 2017.
- The Government will extend the scope of the Budget 2016 proposals designed to target the use of disguised remuneration schemes by employers and employees to ensure that they also cover use of such schemes by the self-employed. The Government will also make the use of disguised remuneration schemes less attractive for employers by denying tax relief for employer’s contributions to disguised remuneration schemes unless income tax and national insurance are paid within a specified period.
- The following changes will be made to the tax-advantaged venture capital schemes in the Finance Bill 2017:
- the EIS and SEIS rules for share conversion rights will be clarified for shares issued on or after 5 December 2016;
- additional flexibility will be introduced for follow-on investments made by VCTs in companies with certain group structures, to align with EIS provisions, for investments made on or after 6 April 2017; and
- a power will be introduced to enable VCT regulations to be made in relation to certain share for share exchanges to provide greater certainty to VCTs.
- The Government will also consult on options to streamline and prioritise the advance assurance service.
- The Government will not, however, be introducing flexibility for replacement capital within the tax-advantaged venture capital schemes at this time, but will review this over the longer term.
Future Budgets and fiscal statements
- Following the spring 2017 Budget, Budgets will be delivered in the autumn (starting in autumn 2017). The Office for Budget Responsibility will produce a spring forecast from spring 2018 and the Government will respond with a Spring Statement, but that Statement will not generally be used to make changes to fiscal policy. From autumn 2017, the Finance Bill will be published following the autumn Budget. The aim will be for the Bill to receive Royal Assent in the spring, before the start of the next tax year. Draft clauses for the next Finance Bill will be published in the summer, rather than in early December.