Most of the press focus on the 2015 Autumn Statement has been on the accompanying spending review, especially the U-turn on tax credits and police funding. There are, however, a number of announcements that should be of interest to our clients.
The government has continued its longstanding campaign against tax avoidance. The measures include:
- a 60% penalty on tax found to be due following a breach of the General Anti Abuse Rule
- closure of the “deep in the money” options scheme to avoid stamp tax
- closure of the loophole allowing partnership / company arrangements to reduce corporation tax
- closure of two capital allowance and leasing avoidance schemes
- intended future legislation to close off all remaining schemes avoiding tax on earned income, not caught by the “disguised remuneration” legislation, and with the effect backdated to 25th November 2015
In our opinion these latest measures confirm that financial advisers should be focused on helping clients to find entirely legitimate means of reducing their tax liabilities rather than attempting to exploit loopholes.
On the tax evasion front, the statement referred to recently introduced legislation which will make failing to declare offshore income or gains a “strict liability” criminal offence. This means even a client who did this innocently would still acquire a criminal record and may face up to six months in prison. Clients should be made aware of this, particularly any who have lived overseas and may still retain offshore investments which they have forgotten to declare.
From April 2016 there will be a 3% surcharge on the stamp duty land tax payable on any second residential properties with a value over £40,000. This will affect clients with a residential property business and may also affect clients with holiday homes or additional properties due (for example) to marriage.
From April 2019 any capital gains tax due on residential properties will have to be paid within 30 days of completion rather than between 10 and 22 months later as is currently the case. This will affect the same clients as above, but also any other clients unable to claim the main residence nil rate band for 100% of the value of their property.
Tax Advantaged Share Investments
In the summer budget the government announced the intention to restrict VCT, EIS and SEIS relief on the more abusive renewable energy schemes. The Autumn Statement has widened this restriction considerably. From April 2016 no energy generation companies at all will be able to offer any of these tax advantageous share schemes.
The uniform business rate is to be abolished, probably by the end of this parliament. It will be replaced by locally determined business rates. This could be either good or bad news, depending on where the business is based.
If you have any client companies using lots of energy they may benefit from the announced exemption from the additional charges intended to help the development of renewable energy sources. This could make it more difficult for us to meet our international carbon emission obligations, but may be good news for some manufacturing clients.
As previously announced, the Employment Allowance will rise to £3,000 in April 2016. If you have small business clients who have avoided taking on an employee particularly because of the National Insurance cost they may find this makes it more advantageous to go down the employment route.
By 2020 most businesses, including small self employed businesses, will have to file quarterly digital tax returns. There will be a consultation in 2016 on how to implement this. The only good news is that the government has promised to ensure there will be free software to allow small businesses to comply.
It would not be surprising if you have not heard about corporation tax on restitution interest, as there seems to have been little comment on this. This is briefly referred to in the Autumn Statement, but the legislation is already in place. Restitution interest is paid to a taxpayer where HMRC have made a “mistake of law” and overcharged a company too much tax as a result. Since 21st October 2015 this has been subject to a special tax rate of 45% rather than 20%. Clearly HMRC make a lot of such mistakes, as the Autumn Statement shows they expect to collect an additional £270 million tax from now until April 2016 just from this rate increase.
There were no announcements at all about the possible changes to the taxation of pensions. This does not mean, however, that there will be no such changes, as it was always the intention for this to be dealt with in next year’s budget. It is a reprieve, though, for higher earners wishing to put more in their pensions right now, as the quite widely anticipated anti forestalling provisions have not been applied.
Pensions auto-enrolment changes will now be aligned with the tax year rather than October.
Hidden in the small print of the Autumn Statement is a slightly worrying comment about salary sacrifice. There is nothing concrete yet, only an announcement that there will be a consultation. I think it is likely that they will be looking to narrow or eliminate entirely the national insurance benefits of salary sacrifice.
The government has announced there will be no new restrictions in the use of deeds of variation for tax planning, but they will continue to review the situation. This is good news for our clients, but as there is some uncertainty it is still, of course, much better for them to ensure right now that their wills are properly drafted to achieve their wishes in a tax efficient manner.
If you have any clients who are sports personalities they should be informed about the new rules on the taxation of testimonial income. Previously the tax position was quite complex, with tax being due on some but not all cases. The new rules for events after 5th April 2017 are that there is a £50,000 exemption provided the income is not contractual.
Finally, on page 53 of the Autumn Statement it says “The Spending Review and Autumn Statement increases investment in catapult centres”. And I thought they were going to spend that money on trident instead!