The Autumn Statement 2012 contained a number of announcements of interest to individuals and small and medium-sized enterprises, but there was comparatively little of relevance to large companies and banks.
The main eye-catching announcement to affect corporates is the further 1% cut to the headline rate of corporation tax – the rate will reduce from 24% for the current year, to 23% from 1 April 2013 and then again to 21% (and not, as previously planned, 22%) from 1 April 2014. This is a further measure, together with other aspects of corporation tax reform (such as reform of the controlled foreign companies rules), towards increasing the UK’s competiveness as a corporate taxing jurisdiction.
The following announcements should also not be overlooked:
- Capital allowances: The annual investment allowance (originally introduced in 2008) will increase from £25,000 to £250,000 for two years with effect from 1 January 2013.
- Bank levy: The bank levy rate is to rise to 0.130%. Futher, legislation will be introduced to ensure that foreign bank levies are (like the UK bank levy) not allowable as a deduction against UK corporation / income tax. These measures will take effect from 1 January 2013, although the prohibition on deductions for foreign bank levies will have retrospective effect in certain limited circumstances.
- GAAR: The Chancellor reaffirmed his intention to legislate for a general anti-abuse rule next year. Draft legislation and guidance is expected later this month.
- Specific anti-avoidance measures: A number of tax avoidance schemes are to be closed down. One relates to mismatches of tax treatment under the loan relationship and derivative contract rules. Rules already exist to neutralise (for tax purposes) group mismatch schemes (as where an economic profit or loss arises from asymetries in accounting treatment within a group). New rules will extend this to arrangements not reliant on groups, as where a company enters into a loan relationship with a partnership of which it is a member and the loan is accounted for differently by the company and the partnership resulting in a tax advantage. The other schemes to be closed relate to property return swaps and manufactured payments. The new legislation has been published in draft and will take effect from today (5 December 2012).
- Other tax avoidance: It was clear from the Chancellor’s statement that tax avoidance, especially by large multinationals, continues to be a priority for the government. HMRC is to be given more resources to tackle tax avoidance and resources will also be provided (by the UK, France and Germany) to the OECD as part of an international effort to tackle tax avoidance at the global level. A press release in advance of the statement also stated the government’s intention to expand the DOTAS rules, which, depending on the detail of the changes, could have compliance implications for businesses engaged in tax planning and their advisers.
The reduction to the main rate of corporation tax and the increase in the annual investment amount are obviously welcome steps towards a more internationally competitive tax system. However, the UK tax system’s historic lack of competiveness has been due largely to its complexity, in no small part added to by its wide-ranging anti-avoidance rules and the onerous compliance burden which they create for all businesses (not just those engaged in aggressive tax planning). Some progress has been made to address this problem (most notably, in the area of controlled foreign companies rules reform) and, if the GAAR is successful in tackling aggressive avoidance schemes, the need for ever-increasing amounts of targeted anti-avoidance provisions should decrease. However, it is obvious from the Chancellor’s statement that businesses can expect no let-up in the political hositility to tax avoidance any time soon.