Today, the Chancellor of the Exchequer handed down his Autumn Statement. It was intended, as the Chancellor put it, to form part of the process to take the UK out of 'a decade of debt' and to put the UK back 'on the right track' so that it could 'compete in the modern world'.
The Autumn Statement did not contain many surprises. As expected, there was a commitment to continue efforts to make the UK a competitive place to do business and a promise to clamp down on those that do not appreciate and comply with the letter as well as the spirit of the law.
The main announcements are:
- A reduction in the main rate of corporation tax applying from 1 April 2014 – it will now be 21%. The main corporation tax rate will fall from 24% to 23% from April 2013, as planned, and then from 23% to 21%.
- An increase in the bank levy rates.
- The General Anti Abuse Rule (GAAR) (which has been the subject of extensive discussion and consultation) will have effect in relation to any tax arrangements entered into on or after the date of Royal Assent to Finance Bill 2013 (likely to be around July 2013).
- An increase in HMRC resources to curb tax avoidance and evasion. This will largely take the form of increased spend on areas such as risk assessment of taxpayers, transfer pricing and a focus on high net worth individuals.
- The top rate of income tax will, it was confirmed, be reduced from 50% to 45% with effect from 6 April 2013.
1. Business taxes
Corporation tax rates
As part of the strategy to ensure that the UK remains competitive, the main corporation tax rate will be cut by an additional 1%. In consequence, the rates will be as follows:
Click here to view table.
Bank levy rates
From 1 January 2013, the full bank levy rate will increase to 0.130% (from 0.105%). The half rate for chargeable equity and long term chargeable liabilities will be increased from 0.0525% to 0.065% and will also take effect from 1 January 2013.
Other business developments
The cost of tax administration: the Government wants to reduce the cost of tax administration to businesses. The specific measures to achieve this are not mentioned.
Taxation of termination payments and share schemes: the Government will carry out a review of ways to simplify the taxation of employee benefits and expenses and employee termination payments.
As previously announced, the Government plans to introduce a new form of employee status – the employee shareholder. This is intended to encourage employees to invest in their employers in order to drive growth. As currently drafted, the main incentive underlying the employee shareholder scheme is an exemption from capital gains tax on the disposal of scheme shares although this is capped at £50,000. HMRC is currently investigating whether income tax and national insurance contribution incentives can also be developed.
There will be a temporary increase (for 2 years) in the annual investment allowance – this will be increased from £25,000 to £250,000. This essentially provides 100% relief for investment in qualifying plant and machinery. The measure is more relevant to small and medium size businesses.
As expected, stopping tax avoidance was a key part of the Autumn Statement and a number of measures were announced or further developed:
- It was confirmed that the General Anti Abuse Rule (GAAR) will have effect in relation to any tax arrangements entered into on or after the date of Royal Assent to Finance Bill 2013. Importantly, the draft Finance Bill will include provisions dealing with the procedural requirements relevant to HMRC's application of the GAAR – to date these have not formed part of the GAAR consultation.
- We are also expecting HMRC's first draft of the GAAR guidance sometime in December.
- Together with France and Germany, the UK will work with the OECD to speed up international efforts to deal with profit shifting and erosion of the corporate tax base at the global level.
HMRC will be allocated more resources to:
- collect taxes;
- fight tax evasion and avoidance;
- improve its risk assessment capability for large multinational companies;
- increase its transfer pricing capability (very broadly, a rule requiring connected companies to use arm's length pricing for intra group supplies of goods and services);
- expand the HMRC Affluent Unit to cover taxpayers with a net worth of over £1 million;
- implement various international agreements relating to information sharing between governments (along the lines of the FATCA intergovernmental agreement); and
- introduce and enforce a more powerful disclosure regime to require promoters of tax avoidance schemes to share information on the scheme and those that buy/participate in them.
A number of loopholes will be closed although specific details have not been published:
- bank levy amendments: it will be made clear that foreign bank levies do not qualify as a deduction for UK corporation tax purposes. This will put foreign bank levies on an equal footing with the UK bank levy, payments of which are not deductible for UK corporation tax purposes.
- tax mismatch schemes: it has been announced that with effect from 5 December 2012 three avoidance schemes will be closed down. The avoidance schemes involve tax mismatches, property return swaps and manufactured payments.
- payments of patent royalties: income tax relief for certain payments of patent royalties has been abolished with effect from 5 December 2012.
- schemes involving partnership losses will be closed.
- Offshore employment intermediaries: the Government will undertake an internal review of offshore intermediaries being used to avoid tax and NICs and will provide an update at Budget 2013.
Draft legislation has been provided for only a few of these loopholes and it is hoped that the draft Finance Bill 2013 may contain more detail when it is published on 11 December.
3. Specific sectors
Financial services and funds
New legislation will be introduced for unauthorised unit trusts and their investors, aimed at preventing avoidance and simplifying the compliance burden of the current rules.
Energy and environment
The Government will establish an Office for Unconventional Gas and, as previously announced, will consult on the tax regime for shale gas.
The Government proposes to simplify the Carbon Reduction Commitment scheme from 2013.
The proposed 3.02 pence per litre increase in fuel duty, planned for 1 January 2013, has been cancelled. The fuel duty increase, due to be introduced in April 2013, has been deferred until September 2013.
There were a number of interesting real estate related developments – affecting both commercial and high value residential property and property holding structures.
Stamp duty land tax (SDLT)
Businesses will welcome the confirmation that the Government proposes to simplify the SDLT rules applying to leases. In particular:
- legislation will be introduced to simplify the reporting requirements applicable when a lease continues after the expiry of its fixed term and where an agreement for lease is substantially performed before the actual lease is granted.
- the rules on abnormal rent increases will be abolished.
- A new 15% rate of SDLT was announced at the March 2012 Budget and included in the Finance Act 2012. It applies to acquisitions of certain high value (ie where the consideration paid is at least £2 million) residential properties by non-natural persons such as companies. Today, it was confirmed that a number of reliefs are to be introduced for taxpayers that will broadly replicate those for the annual residential property tax (as to which – see below).
- The Government will exempt all newly built commercial property completed between 1 October 2013 and 30 September 2016 from empty property rates for the first 18 months (subject to state aid approval).
Real Estate Investment Trusts (REITs)
- REITs will be allowed to invest in other REITs for accounting periods beginning after the date of Royal Assent to the Finance Bill 2013. However, there will be no further relaxations for social housing REITs which are said to be 'neither viable nor necessary at this time'.
Annual residential property charge
- As expected, the annual charge for high value (ie where the value of the property exceeds £2 million) residential property owned by certain non-natural persons will come into effect from 1 April 2013. The annual charge has been the subject of consultation over the summer. There will be a number of reliefs available for cases where the dwelling is being, or is to be, used for a certain genuine commercial activities.
'Mansion tax' proposals
- The Chancellor confirmed that the so called 'mansion tax' will not be introduced.
The Chancellor announced a commitment of a £5 billion capital investment in infrastructure. In particular, an additional £1 billion will be invested in roads, including major new schemes such as linking the A5 with the M1 motorway. The precise details of how this commitment will be met remains to be confirmed.
The Chancellor also announced an extra £600 million investment in the UK's scientific research infrastructure. This is part of the plan to support innovation in the UK.
4. Personal taxes
Income tax and allowances
The Chancellor confirmed that the reduced 45% additional rate (due to come into force in April 2013), which will apply for earnings over £150,000, will stand. Currently, the additional rate is 50%.
The 40% tax rate will apply for earnings over £41,450 for the 2013 / 2014 tax year (this threshold represents the personal allowance plus the basic rate limit). The 40% rate currently applies to a threshold of £42,475.
The tax rates applying to dividends received by individuals remains the same (10% for basic rate taxpayers (effective tax rate of 0% taking into account the tax credit), 32.5% for higher rate taxpayers (effective tax rate of 25%) and 37.5% for additional rate taxpayers (effective tax rate of 30.56%)).
The income tax personal allowance will be increased in April 2013 to £9,440.
With effect from 6 April 2014:
- the lifetime allowance for relief for pension contributions will be cut from £1.5 million to £1.25 million.
- the annual allowance will be reduced from £50,000 to £40,000.
Individual Savings Accounts (ISAs)
The ISA limit for the year commencing 6 April 2012 is £11,280. This amount can comprise a cash ISA maximum of half of that amount. With effect from 6 April 2013, the maximum contribution to an ISA will be £11,520.
In a change from current policy, the Government will consult on 'allowing investments in small and medium equity markets like AIM to be held directly in stocks and shares ISAs, to encourage investment in growing businesses'.
Capital Gains Tax
The capital gains tax rates (18% and 28% for higher rate tax payers) will remain the same.
The annual exempt amount (currently £10,600) will be increased by 1% annually instead of being index linked but it is unclear whether the current threshold or an index linked figure will apply in 2013 / 2014.
For the tax year 2014 / 2015, the annual exempt amount will be £11,000 and for the tax year 2015 / 2016, the annual exempt amount will be £11,100.
The annual exempt amount has been frozen since 2009 at £325,000 and will remain at this figure until 6 April 2015. From 2015/2016, the annual exempt amount will be increased to £329,000.