ACCA commentary on Autumn Statement:
Analysis of the Autumn Statement from ACCA’s experts.
The UK economy
Manos Schizas, ACCA Senior Economic Analyst, says: ‘Unlike previous Budgets and Autumn Statements or PBRs this Statement is aimed squarely at high street businesses with plans for slow, steady or no growth. There is an irony in how talk of ‘rebalancing’ the UK economy has disappeared now. Growth is now once again meant to be fuelled by consumption, retail spending, and housing rather than by investment.’
Sarah Hathaway, head of ACCA UK, says: ‘Businesses, now more than ever, are looking for long-term, sustainable measures that extend beyond the term of Parliament or government. Quick fix, sugar coated initiatives are not what the City and the wider UK business community are looking for and create uncertainty at a time when UK plc is looking to build on firmer ground. While many announcements in the Autumn Statement are favourable to businesses, their life span and breadth of impact will be critical for the economy. This sentiment is true for other government policies, for example apprenticeship funding, so that businesses have the foundations of both finance and skills in place to grow.
‘The Bank of England has shown its understanding of businesses needs for certainty, first through its introduction of forward guidance and, just last week, its decision to make the Funding for Lending Scheme a business initiative rather than the home loan vehicle it had become. Businesses need that level of certainty about the long-term from the Treasury as well as from Threadneedle Street.’
Small and medium sized business
Rosana Mirkovic, ACCA head of SME Policy, says: ‘The government has moved away from the previous focus of encouraging growth in the more dynamic SMEs towards supporting smaller enterprises through business rate inflation caps and a further promise of reforms on this front in 2017. Various measures announced for supporting the bricks-and-mortar high street businesses show a welcome move back to supporting the smallest and micro businesses. However, braver decisions could have been made – business rates reform has been put off for 2017, when it is clear from previous, recent budgets that the system was just not designed to take spikes in inflation into account.
‘Reducing National Insurance contributions for young people could help small businesses, however, whether this is aimed at helping SMEs or get young people off benefits is an important distinction. SMEs in the UK are calling for a more skilled workforce, not an unskilled one.’
Taxation and state retirement age
Chas Roy-Chowdhury, ACCA’s head of taxation, says: ‘Families across Britain will need to look in detail at what the Autumn Statement means for them. The married person’s tax allowance is a welcome move in principle, but not everyone benefits. In having an allowance restricted to those who are basic rate taxpayers creates an even more complex tax regime as well as confusion around couples who eventually become higher rate taxpayers. It should be possible for all taxpayers living with a partner to benefit from the allowance.’
‘There is logic in the government increasing the state retirement age to 68 by the mid-2030s, as people live longer, but at the same time families looking to save for retirement are being penalised. The annual pension contribution limit is set to drop from £50K to £40K and the total value of the pot people can have will also drop by quarter of a million pounds from next April, so those trying to be frugal and not be dependent on the state are being squeezed.’
‘ACCA welcomes the decision to exempt HMRC from further budget cuts. It is vital that it is properly resourced to keep the tax system running, and help staff the promised crackdown on those who try to evade or exploit that system. However, ‘no further cuts’ actually means cuts in real terms, making life difficult for HMRC. The government wants to tighten tax collection, but it needs to invest in HMRC to achieve it.’
Business support and access to finance
The Autumn Statement acknowledges that, while credit conditions are improving, SMEs face longer term challenges in securing access to finance.
After the launch of the British Business Bank which has started to deploy £1bn to support the supply of finance to SMEs, the Chancellor announced that the government will use unspent funding from the Business Finance Partnership to provide a further £250m for the British Business Bank’s new schemes that include:
- investing in late stage venture capital funds which in turn invest in high growth potential SMEs
- launching an innovative new scheme to support the provision of lease and asset finance
- launching a programme of wholesale guarantees for SME loans.
The government will also provide an additional £160m for Start Up Loans to 2018-19 in order to meet higher than expected demand and allow the scheme to roll out to all ages.
The Office of Fair Trading (OFT) has been collecting evidence on whether banks are requiring SMEs to open or maintain a business current account in order to qualify for a loan. The government has asked the OFT to take decisive action to end this anti-competitive practice, if needed.
The Autumn Statement 2013 also announces further action to help British exporters take advantage of opportunities in new and emerging markets.
In particular the government will:
- give UK Trade and Investment (UKTI) greater financial independence and recruitment flexibility to back British business overseas and compete for inward investment
- establish British Business Centres to provide in-market services to SMEs in key emerging markets and step up UKTI coverage in China and India
- increase UK Export Finance (UKEF) support to exporters, including: doubling UKEF’s maximum commitment limit to £50bn; broadening the scope of the existing Direct Lending and Working Capital Schemes in order to help more companies; doubling the number of export finance advisers; and supporting insurance, pension funds and other investors to lend in support of UK exporters.
The Chancellor’s strategy for supporting business via access to finance is therefore mainly articulated on the new funding schemes deployed by the recently formed British Business Bank, a refinancing of the Start Up Loans scheme and an extension of support to British exporters which includes further financing capacity of UKEF.
Capital taxes
Private residence relief
Capital gains tax relief under section 222 to 226 TCGA 1992 contains provisions to provide relief from the gain on the sale of a person’s only or main residence. At present, if a person buys another residence there is relief from tax for the last 36 months of ownership, even if another home has been purchased. From April 2014, this period of 36 months is to be reduced to 18 months.
Non residents
The government will introduce a tax on future gains made by non-UK residents disposing of UK property from April 2015. A consultation on implementation of this will be published early in 2014.
Employee ownership
The government will introduce three new reliefs to encourage and promote indirect employee share ownership:
- from April 2014, disposals of shares that result in a controlling interest in a company being held by an employee ownership trust will be relieved from CGT
- transfers of shares and other assets to employee ownership trusts will also be exempt from inheritance tax
- from October 2014, bonus payments made to employees of indirectly employee-owned companies which are controlled by an employee ownership trust will be exempt from income tax up to a cap of £3,600 per annum.
Share incentive plans and save as you earn limits
The share incentive plan annual limits will increase to £3,600 per year for free shares and to £1,800 per year for partnership shares. The maximum monthly amount that an employee can contribute to save as you earn savings arrangements will increase from £250 to £500. These changes will take effect from April 2014.
Inheritance tax and trusts
‘Simplification’ of trusts: the government will legislate to simplify filing and payment dates for IHT relevant property trust charges. It will also legislate to treat undistributed income which remains undistributed for five years as part of the trust capital when calculating the 10 year periodic charge. It will consult on proposals to split the IHT nil-rate band available to trusts with a view to delivering this change alongside the simplification of trust calculations in 2015. This could defeat the object of simplification in the case of multi-settlor trusts.
Vulnerable beneficiary trusts:with immediate effect from 5 December 2013, the CGT ‘uplift’ provisions will apply on the death of a vulnerable beneficiary. From 2014-15, the range of trusts will be extended to include those that qualify for special income tax, CGT and IHT treatment and the government will consult on further reforms.
Anti-avoidance measures
The Chancellor announced further measures from the government to clamp down on tax avoidance and aggressive tax planning that follow on from the introduction of the General Anti-Abuse Rule and disguised remuneration legislation, the closure of various tax loopholes and the action against promoters of high-risk tax avoidance schemes.
Following the announcement of a review of the rules for partnerships in Budget 2013, and a consultation document issued in May 2013 about changes to tax rules to counter the use of limited liability partnerships to disguise employment relationships and the tax-motivated allocation of business profits to corporate partners, the Autumn Statement confirmed that the proposals will be taken forward.
In particular in respect of partnerships with mixed membership, the government has published draft legislation to be introduced in the Finance Bill 2014 and effective mainly from 6 April 2014. The legislation will cause a reallocation of profits where partnership profits are allocated to a non-individual partner in circumstances where an individual partner may benefit from those profits and will deny certain tax loss reliefs where partnership losses are allocated to an individual partner rather than a non-individual one mainly to achieve a loss relief.
The reallocation of excess profits from a non-individual partner to an individual partner will apply where:
- the non-individual partner has a share of the partnership’s profits
- the non-individual’s share is excessive in terms of notional return on capital contributed and in respect of notional consideration for the services provided to the partnership
- the individual partner has the power to enjoy the non-individual’s share or the non-individual’s share is effectively deferred profit of the individual
- it is reasonable to suppose that the whole or part of the non-individual’s share is attributable to that power or to the deferred profit arrangements.
The legislation also includes provisions that will similarly reallocate profits to an individual who is not a partner if it is reasonable to assume that the individual would have been a partner if the anti-avoidance rules would have not been in place.
Additionally, the legislation denies certain income tax loss reliefs and capital gains relief for a loss allocated to an individual partner where the individual is party to arrangements, the main purpose of which, or one of the main purposes of which, is to secure that some or all of the loss is allocated to the individual with the intention of obtaining relief.
The Autumn Statement also announced action to prevent employers and employment intermediaries from avoiding employer NICs and circumventing their employer obligations. Legislation will be introduced to the effect of preventing intermediaries from using contrived contracts to disguise the employment of workers as self-employment.
In respect of tax avoidance schemes, the Chancellor announced that new requirements will be introduced for users of failed avoidance schemes to oblige them to settle the dispute where the scheme used has been defeated in another party’s litigation through the Courts, with penalties attached for non-compliance, and to pay the tax in dispute with HMRC upfront.
With regard to high-risk promoters of tax avoidance schemes, the government will introduce objective criteria for identifying and publishing the names of high-risk promoters, seeking more information from them and applying penalties where there is failure to comply.
Income tax, national insurance pensions and tax credits
As expected, the personal allowance will increase to £10,000 from 6 April 2014. At the same time, the threshold for higher rate tax will be reduced to £31,865. Tax rates will not be announced until Budget 2014.For the first time since independent taxation for married women was introduced in 1990, there is different tax treatment for married couples, or couples in a civil partnership, that will apply for all such couples, regardless of age. This new measure will allow a spouse or civil partner to transfer £1,000 of their personal allowance to their spouse or civil partner. From April 2015, a spouse or civil partner not liable to income tax, or who is a basic rate taxpayer can make the transfer, as long as the recipient is not liable to income tax above the basic rate.
As announced at Budget 2013 the government will introduce a tax exemption for amounts up to £500 paid by employers for medical treatment for employees. This exemption applies only to medical treatment, not medical insurance. Medical insurance paid for by an employer on behalf of an employee will remain a taxable benefit in kind.
From 6 April 2015 employers’ national insurance will be abolished for employees aged under 21 on earnings paid up to the Upper Earnings Limit (UEL). For 2014/15 there are no changes to national insurance rates for class 1, class 1A, class 1B and class 4, though all of the thresholds and limits will change.
Class 2 and class 3 weekly rates will be increased, and the new rates will be announced in Budget 2014. The class 1 UEL and class 4 upper profits limit for NICs will, as before, be aligned with the point at which higher rate tax becomes payable, i.e. £41,865.
From October 2015 there will be a new class of voluntary NICs – class 3A – which will give those people reaching state pension age before 6 April 2016 an opportunity to boost their additional state pension.
The government will introduce individual protection 2014 (IP14) as a consequence of the reduction in the lifetime allowance to £1.25m from 6 April 2014. Individuals with IP14 will have a lifetime allowance of the value of their pension savings on 5 April 2014 subject to an overall maximum of £1.5m.
The disability elements of tax credits will be increased by 2.7%, in line with CPI. The family element of child tax credits remains at £545. All other tax credits will increase by 1%.
An overview of changes to common VAT and indirect taxes.
Fuel duty
The Chancellor announced a freeze in the fuel duty for ‘the remainder of this parliament’. The anticipated increase in September 2014 of 1.61 pence per litre is therefore cancelled.
The Chancellor went on to announce that by 2015/16 the average motorist will be saving £11 every time they fill their tank or £680 over the course of a year (for a typical motorist). He also highlighted that ‘by the end of this parliament, on average pump prices will be 20 pence per litre lower than pre 2010’.
A small business with a van will save an estimated £1,300 per year and a haulier an estimated £21,000 by 2015-16.
Another fuel duty announcement sees the maintenance of the differential between lower road fuel duty on gases (compressed natural gas, liquid natural gas and biomethane) and the main fuel duty rate until March 2014. The differential between the main fuel duty rate and the rate for liquefied petroleum gas will reduce by 1% each year until 2024. The government will also seek EU approval to apply a reduced fuel duty rate for methanol.
Vehicle excise duty (VED)
There are major changes to the VED regime. There will be legislation to allow motorists to pay by direct debit annually, biannually or monthly (a 5% surcharge will apply to biannual and monthly payments). Legislation will also be introduced to remove the requirement to issue and display a paper tax disc. These changes will be effective from 1 October 2014.
Alcohol duty
As previously announced on 17 July 2013, there will be a ban on sales of alcohol below duty plus VAT in England and Wales. The measure will be introduced in spring 2014 and follow a similar system introduced in Scotland by the Alcohol (minimum pricing) (Scotland) Act 2012.
VAT returns
The government will consult on VAT regulations that require a business to file VAT returns online. The consultation will look at amending the regulations to allow alternative options.
Few changes to corporation tax
Other than the few anti-avoidance measures that would mostly affect large multinational groups, very few measures were announced.
Corporation tax: amending loss relief provisions
The government will amend existing corporation tax provisions to ease the rules restricting the availability of relief for corporation tax trading losses when companies change ownership.
Corporation tax: associated companies rules
The government will replace the associated companies rules with simpler rules based on 51% group membership in April 2015, when the main rate and small profits rate of corporation tax are unified at 20%.
Close company loans to participators
Following a consultation launched at Budget 2013, the government does not intend to make any immediate changes to the structure or operation of the tax charge on loans from close companies to individuals who have a share or interest in them.
Avoidance scheme using total return swaps
The government will close down a tax avoidance scheme, with immediate effect, which has enabled companies to pay their profits to a company in the same group located overseas, thus escaping a corporation tax liability. It ensures that deductions are not allowed for corporation tax purposes where a payment is made under a derivative contract which is, in substance, a payment of profits.
Avoidance scheme – controlled foreign companies (CFCs): profit shifting
The government will make changes to the CFCs rules (with immediate effect from 5 December 2013) to address the transfer offshore of profits from existing UK intra-group lending. Legislation will be introduced in Finance Bill 2014 to establish a new rule which prevent a creditor relationship of a CFC from being a qualifying loan relationship if it arises as a result of any arrangement which has a main purpose of transferring out of the UK profits from a loan made by a UK company connected with a CFC.
Double taxation relief: closing loopholes
The government will, with immediate effect from 5 December 2013, close two loopholes to reinforce the UK’s double taxation relief policy that relief for foreign tax should only be given where income has been doubly taxed, once in the UK and once in the foreign territory.