Autumn Statement 2015
Commentary
Contents
1.
Introduction
4
2.
Personal and trust taxes
5
2.1
Starting rate of savings tax
5
2.2
Extending averaging relief for farmers
5
2.3
Business investment relief for those on the remittance basis
5
2.4
Clarification of time limits for self-assessment
6
2.5
Devolution of income tax rate setting powers to Wales
6
3.
Pensions, investments and capital taxes
7
3.1
Changes to the individual savings account (ISA) rules
7
3.2
Excluded activities widened to include reserve energy generation
7
3.3
Pensions tax relief consultation
8
3.4
Secondary market for annuities
8
3.5
Capital gains tax (CGT) Entrepreneurs’ Relief: contrived structures
9
3.6
Inheritance tax (IHT) and undrawn pension funds in drawdown pensions
9
3.7
Deeds of variation review: no changes are required
10
3.8
IHT concession for victims of WWII persecution to be legislated
10
4.
Property taxes
11
4.1
Residential property CGT payment window
11
4.2
CGT for non-UK residents disposing of UK residential property
11
4.3
SDLT: additional properties
12
4.4
SDLT: changes to the filing and payment process
12
4.5
SDLT: certain authorised property funds
12
4.6
Annual tax on enveloped dwellings (ATED) and 15% rate of SDLT: reliefs
13
5.
Employment taxes and payroll
14
5.1
Apprenticeship levy
14
5.2
End of relaxation of real-time reporting (RTI) obligations
14
5.3
Salary sacrifice
14
5.4
Diesel supplement for company car benefit to remain
15
5.5
Employment intermediaries and tax relief for travel and subsistence
15
5.6
Employee share schemes rules simplification
15
5.7
Disguised remuneration
15
5.8
Taxation of sporting testimonials
16
5.9
Changes to the taxation of asset managers’ awards
16
5.10
Review of employment status
16
6.
Business taxes
18
6.1
Corporation tax in Northern Ireland set for reduction to 12.5%
18
6.2
Taxation of loan relationships and derivatives
18
6.3
Corporation tax: restitution interest
18
6.4
Large business compliance and tackling the highest risk businesses
18
6.5
Change in scope of the UK bank levy
19
6.6
Company distributions
19
6.7
Capital allowances and leasing
19
6.8
OECD BEPS: anti-avoidance measures targeting hybrid instruments
19
6.9
Related parties rules: partnerships and transfers of intangible assets
20
7.
Indirect taxes
21
7.1
VAT measures
21
7.2
Stamp duty and stamp duty reserve tax (SDRT) on DITMOs
21
8.
General tax matters
22
8.1
Making tax digital – mandatory quarterly business reporting
22
8.2
Simple assessment
22
8.3
Gift aid small donations scheme
23
8.4
Penalties for arrangements tackled by the general anti-abuse rule
23
8.5
Serial avoiders
23
1.
Introduction
George’s 2020 vision
In the 2015 Autumn Statement, Chancellor George Osborne set out not only his spending plans and forecasts for revenue but also his vision for 2020. Whether George Osborne will still be Chancellor by then, or will have moved next door into the smaller house at number 10, remains to be seen.
The Government plans to invest £1.8bn in digital transformation by 2020. As we already know, this will involve replacing tax returns with online digital accounts. The new system is also to include the building of a ‘simple payment’ mechanism for all central government departments and a system for HM Revenue and Customs (HMRC) itself to ‘simply’ assess individuals.
What is new for the tax system is the Government’s intention to introduce quarterly digital reporting to HMRC for most businesses and buy-to-let landlords. It seems that this will include most corporates and the self-employed. Will this be a much-needed advancement in the ever-evolving digital age? Or will this be an extra layer of red tape, potentially requiring businesses to prepare accounts and returns four times a year instead of once?
As part of the drive to force changes in the housing market to increase the availability of housing to those who wish to buy their own home, the Chancellor has announced further changes for buy-to-let landlords. These changes are intended to tip the playing field in favour of first time buyers, although it is not clear why the target is individual landlords and not also corporates.
The property proposals include a 3% surcharge on stamp duty land tax (SDLT) on purchases of buy-to-let and second homes (though whether this covers house moves involving short periods of bridging remains to be seen). There will also be a speeding up in the reporting of capital gains and tax payments, within 30 days of the disposal of private houses not covered by private residence relief, and plans to look at speeding up SDLT reporting and payment.
The other main announcements on the tax front were more muted than feared, given the Chancellor has found quite a few £bn down the back of the Office for Budget Responsibility’s (OBR) sofa. This means he does not have to dip into everyone else’s pockets quite as much to fill the gap opened up by the recent tax credit debate. He has however, and not unexpectedly, included a large number of measures to further tackle avoidance and evasion, which are clearly well within the Chancellor’s sights.
Further news on the devolved taxes and rates of tax to apply outside England is also starting to emerge, with the UK Government due to legislate to remove the requirement for the Welsh Assembly to hold a referendum to implement the Welsh rate of income tax.
As for the distribution of tax burden, the Autumn Statement confirmed that the highest income households pay the bulk of taxes. The forecast for 2019/20 indicates that the richest 20% of households will pay more tax than all the other households put together. Is this a tipping point beyond which the Government dare not go? Is this why the Autumn Statement was not quite as bad as some commentators feared?
As ever, details will gradually emerge over the coming weeks. Our tax teams will be trawling through the draft legislation, much of which is due to be published on 9 December, and technical notes as they become
available.
Time will tell whether George’s 2020 vision was rose tinted.
Tina Riches
2.
Personal and trust taxes
2.1
Starting rate of savings tax
The band of savings income subject to the 0% starting rate will remain unchanged at £5,000 for 2016/17.
The 0% starting rate for savings income has applied since 6 April 2015, to the first £5,000 of savings income, replacing the previous 10% starting rate. It has now been announced that this band will not increase for the 2016/17 tax year.
Comment
No change to this band is unsurprising as a negative Consumer Prices Index (CPI) for the year to September 2015 means no automatic inflationary increase.
The 0% rate only applies to savings income falling within the available starting rate band and, as non-savings income is always taxed before savings income, the band is not always in point.
2.2
Extending averaging relief for farmers
Following the consultation announced at the 2015 Budget, the averaging period for self-employed farmers will be extended from two to five years from April 2016.
Currently, self-employed farmers can elect to average profits for tax purposes over a two-year period in order to help even out fluctuating results. From April 2016, this period will be extended to five years.
This extension was announced as part of the 2015 Budget and a period of consultation followed over the summer.
The legislation to extend the relief will be included in Finance Bill 2016.
Comment
The National Farmers’ Union has pushed for this extension, noting that it will assist 29,000 farmers who have to operate in a volatile market.
Concerns were raised as part of the consultation as to how these rules would be implemented. It will be interesting to see how these concerns have been addressed once the legislation is published.
2.3
Business investment relief for those on the remittance basis
The Government has announced that it will consult on how to change the business investment relief (BIR) rules in order to encourage greater use of the relief.
BIR was introduced from 6 April 2012 with the aim of allowing non-UK domiciled taxpayers to remit funds from untaxed foreign income and gains to the UK tax-free, where the funds are invested in certain qualifying businesses. The funds must generally also be transferred back outside the UK following the disposal of qualifying investments and there are restrictions for taxpayers receiving benefits from the investments in question.
In order to encourage greater use of the relief, the Government has announced that it will consult on changes to the BIR rules. While it is not clear what changes are proposed, there are a number of aspects to the rules that could potentially be relaxed or simplified.
Comment
While the announcement of the relief in the 2011 Budget was initially welcomed, take-up has been disappointing, so it is not surprising that changes are being considered.
Relaxation or widening of the relief would fit into the Government’s often-stated aim of encouraging
investment into the UK and will be of particular interest to those affected by the more general changes to the taxation of non-UK domiciled taxpayers that are due to come into force from 6 April 2017, however we remain
convinced that for deemed non-UK domiciled individuals it would be far easier to exempt the remittance of previously untaxed foreign income and gains, which would encourage individuals to bring these funds into the UK and encourage investment.
2.4
Clarification of time limits for self-assessment
Legislation will be published to clarify the time allowed for making a self-assessment.
The Government will clarify via legislation that the time limit for making a self-assessment is four years from the end of the relevant tax year.
Comment
This is an unsurprising legislative change, which follows the Upper Tax Tribunal’s recent decision against HMRC’s policy of refusing to process self-assessment tax returns that they considered to be ‘late’, that is submitted more than four years after the end of the relevant tax year.
The case turned on the interpretation of the Taxes Management Act 1970 and highlighted an opportunity for late claims to be made. With the legislation now announced, it may be that this opportunity has been lost going forward.
2.5
Devolution of income tax rate setting powers to Wales
The Government will legislate so that the devolution of income tax to Wales can take place without a referendum.
The Wales Act 2014 included legislation setting out the conditions for a Welsh referendum to give Welsh Ministers the power to vary income tax rates within Wales. The Chancellor’s announcement would mean that this referendum will no longer be necessary.
The UK income tax rates (basic rate - BR, higher rate - HR and additional rate - AR) applicable to Welsh taxpayer individuals, on non-savings and non-dividend income, will each be reduced by 10%. Such individuals will then be subject to the Welsh rates of BR, HR and AR as well as the reduced UK income tax rates. If each of the Welsh rates were to be 10% the tax payable would be no different.
The current position is that there will be three Welsh rates which can be set independently. This is slightly different from how the Scottish rate of income tax is applied.
Comment
The Government says this smoothing of the process is a reflection of the change of the debate in Wales. We wait to see if the prospective implementation date of April 2018 remains. With various tax rates potentially differing in Wales, Scotland, and now Northern Ireland for corporation tax, the tax landscape is now more complicated in a wholly new way.
3.
Pensions, investments and capital
taxes
3.1
Changes to the individual savings account (ISA) rules
The current annual investment limits for ISAs will be maintained for 2016/17. The list of qualifying investments will be extended and the ISA tax advantages will be maintained during the administration of a deceased person’s estate.
The Autumn Statement ISA announcements included:
• the current annual investment limits will remain at £15,240 for ISAs and £4,080 junior for ISAs and child trust funds for 2016/17, as the CPI rate for September indicates that inflation over the previous 12 months was negative;
• the list of qualifying ISA investments will be extended so as to include debt securities offered via crowdfunding platforms, with the Government further exploring the possibility of including crowdfunded equity investments; and
• the tax benefits of ISAs will be extended throughout the administration period following an investor’s death.
Further plans for the introduction of the latter change will be set out in 2016, following technical consultations with ISA providers.
Comment
The extension of the list of qualifying investments will be welcomed. Although it could be asked why
crowdfunded securities are included while crowdfunded equities are not; in practice it is rare for such equities to pay dividends and gains are often exempt from tax due to the availability of Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) reliefs. Indeed, the EIS and SEIS reliefs may be more attractive to investors in crowdfunded equities than the ISA tax advantages.
The extension of ISA reliefs during administration periods is particularly beneficial, as over time large ISA investment portfolios can build up income and gains which currently become taxable immediately as they arise after death. The proposed change should mean that effectively assets in an ISA can move tax free from one spouse or civil partner through an estate and onto the surviving spouse or civil partner, who, since 3 December 2014, could inherit the cumulative allowance.
3.2
Excluded activities widened to include reserve energy generation
Companies providing reserve energy generating capacity will no longer qualify for EIS, Venture Capital Trusts (VCT) and SEIS investment with effect from 30 November 2015.
As enacted in the Finance (No.2) Act 2015, amendments have been made to restrict companies involved in providing reserve energy generating capacity and generation of renewable energy benefiting from other government support by community energy organisations, from qualifying for EIS, VCT and SEIS investment, with effect from 30 November 2015.
The Government has also indicated it will introduce increased flexibility for replacement capital within the EIS and VCT schemes, subject to EU state aids approval.
Furthermore, these activities will be excluded from qualifying for Social Investment Tax Relief (SITR) when the scheme is enlarged. The Government also announced that all energy generation activities will be excluded from the above schemes from 6 April 2016, and from the enlarged SITR scheme when introduced.
Comment
The change to the rules to exclude reserve energy generation from qualifying under the venture capital schemes was previously announced. The change will impact the reserve energy sector and make it more difficult to raise venture capital funds.
The comment that the Government is looking to introduce flexibility for replacement capital is a positive step. We wait to see how this is to be achieved so that the benefit to recipient companies and their investors can be determined.
3.3
Pensions tax relief consultation
A consultation paper was published in July about the future of tax relief on pension contributions upon which comment was invited by 30 September 2015. The Government is considering the responses and will publish its response at Budget 2016.
Following receipt of a very large number of responses it has been recognised that these will take time to consider and respond to and as result it has been announced that the response will not be published until Budget 2016.
Comment
Overall tax and national insurance contributions (NIC) relief on pension contributions costs the Exchequer c£50bn a year, so around twice the amount it was ten years ago. Consequently, it has been an easy target for Government savings. The amount you can contribute tax efficiently into your pension has been chipped away at regularly, as has the amount you can accumulate within it, including through organic growth, during your working life.
It seems that the Government now has its eyes on a bigger prize, by suggesting root and branch changes to pensions tax relief to make more significant and immediate tax and NIC savings.
We currently operate pensions tax relief on an Exempt, Exempt, Taxed (EET) basis giving tax relief on pension contributions, allowing the fund to grow almost entirely tax free while at least 75% of the pension is eventually taxed.
HMRC has asked for industry views on changing this to a Taxed, Exempt, Exempt (TEE) basis. While the
contributions would not be tax relieved, the Government would add to the individual’s and/or their employer’s contribution with a contribution of their own.
The main thrust of the responses has been to object to these proposals not least because there have been significant changes to pensions in the past few years and more significantly because it is not easy to see how such changes might work within the current system.
While the Government has suggested that a change of this nature would aid understanding and encourage more savers on the back of the ‘success’ of auto-enrolment, things are never that simple and the fact that
individuals need excess disposable income to make contributions seems to have been missed.
It will be interesting to see what develops, but it is hoped that the status quo is maintained because, like it or not, the annual and lifetime allowances work reasonably well as valves to control tax relief. The real issue is ensuring that the tax cost of contributions into final salary schemes is controlled to ensure that they do not swamp those of their poorer defined contribution brothers.
3.4
Secondary market for annuities
It was proposed some time ago that the Government would allow individuals with annuities to sell them to third parties, giving them parity with those who have drawdown pensions who can release their fund in its entirety as from 6 April 2015.
The legislation facilitating this will not now be enacted before Finance Act 2017. It is understood that a number of technical issues need to be resolved, not least whether sales to non UK resident persons should be allowed.
Comment
While this change is being introduced to bring fairness to those locked into annuities, it is unlikely that the market will be a large one and even less likely that generous offers will be made for existing annuities. The practicalities associated with annuity purchases of this nature are complex as life expectancy is likely to be a key issue for both parties and it remains to be seen what information the original annuitant will have to provide to ensure that the annuity ceases at the right time. Sales to non-UK residents will give headaches from a tax perspective and it is not entirely clear whether they will be allowed to enter the market.
3.5
Capital gains tax (CGT) Entrepreneurs’ Relief: contrived structures
The Government is considering bringing forward legislation to amend changes introduced in Finance Act 2015 to Entrepreneurs’ Relief in order to ‘support businesses by ensuring that the relief is available on certain genuine commercial transactions’.
Finance Act 2015 contained a number of technical amendments designed to restrict the availability of Entrepreneurs’ Relief where it was considered to be overly generous. The main areas where the Finance Act tightened up this relief were in respect of:
• associated disposals;
• joint ventures and partnerships; and
• goodwill on incorporation of ‘close’ companies (i.e. companies controlled by five or fewer participators). The details of this new announcement are not yet clear and we await further details and/or a consultation.
Comment
The Finance Act 2015 changes restricting Entrepreneurs’ Relief included a number of unintentional
consequences. In particular, it was felt that a number of genuine commercial situations where the investment was within the spirit of the legislation would be excluded from relief by the new rules.
This announcement appears to indicate a potential relaxation of the restrictions and as such is good news for entrepreneurs.
This good news is all the better for the absence of any announcement of other changes to this important relief, despite widespread concerns in advance of the Autumn Statement.
3.6
Inheritance tax (IHT) and undrawn pension funds in drawdown pensions
This provision will reverse the previous provision. The position was that if an individual failed to exercise their right to take their pension and a lump sum was left to beneficiaries, that lump sum had in some instances been regarded as subject to IHT.
If an individual who enters into a flexi-drawdown pension fails to withdraw the entire fund before death, whether by choice or otherwise, it has been arguable that the residue might be subject to IHT on death. This is on the basis that a decision to not draw down a pension could be deemed to be a deprivation of an estate and hence taxable.
The Government has announced that provisions will be introduced in the Finance Bill 2016 to ensure that this will not now be the case and the provisions will be backdated to 6 April 2011.
Comment
This is a welcome move that will remove any uncertainty as to whether such funds might be subject to IHT, which was highlighted last year in the case of RWJ Parry and Others (Mrs Staveley’s Personal Representatives). Individuals should be checking pension nominations and trusts to ensure that they are maximising the benefits resulting from the relaxation of tax on pension death benefits from April 2015 and this announcement clarifies the IHT anomaly which is welcome. The rules are quite complex and advice should be taken to avoid mistakes.
3.7
Deeds of variation review: no changes are required
The Chancellor’s final budget of the Coalition Government announced a consultation into the
circumstances in which deeds of variation, to alter the wills of deceased individuals after their death, are used.
The consultation closed in October 2015 and the Chancellor concluded in the Autumn Statement that no changes are required.
The reason for the consultation was perceived avoidance of IHT.
However, there were widespread concerns from the professions that any amendments could result in inequitable anomalies and/or remove important safeguards from surviving family members and other beneficiaries and lead to a need for individuals, especially the elderly, to review and update their wills regularly.
Comment
The alteration of wills via deeds of variation is a well-established practice and can serve a number of
pragmatic purposes. Previous calls in the 1990s for a review of deeds of variations did not result in any changes and the result is the same this time around, albeit that the Government ‘will continue to monitor their use’. This is a welcome conclusion for the Government to have reached on this sensitive topic. It is also a notable successful use of the consultation process in order to highlight potential difficulties with potential reforms.
3.8
IHT concession for victims of WWII persecution to be legislated
Legislation will be introduced to codify the existing extra statutory concession from IHT for compensation and ex-gratia payments made to victims of persecution during the World War Two period.
Under HMRC extra statutory concession F20, IHT is not charged on compensation received by victims of persecution during the World War Two period. This concession is to be codified in legislation. Payments received under the recently created scheme known as the ‘child survivor fund’ (a scheme open to Jewish Nazi victims born on or after 1 January 1928) will specifically be included. The legislation will apply for deaths on or after 1 January 2015.
Comment
Although this change is, in practice, simply the formalisation of an existing concession, its aims are laudable and it will bring welcome certainty to the families of victims.
4.
Property taxes
4.1
Residential property CGT payment window
From April 2019, a payment on account of any CGT due on the disposal of a residential property will be required to be made within 30 days of the completion of the disposal.
CGT is currently payable on the 31 January following the end of the tax year in which the disposal takes place. This results in tax being payable between 10 and 22 months after the actual disposal.
From April 2019, a payment on account of this CGT will be required 30 days after the disposal where the asset is residential property. This will not affect properties where gains are exempt under the private residence relief.
Draft legislation is expected in 2016; this will be followed by a period of consultation.
Comment
The Autumn Statement highlights the apparent disparity between those subject to tax under PAYE and those who are liable to CGT as the reason for this change. However, income tax due under PAYE is paid by employers on behalf of employees, and can be adjusted cumulatively through the year, e.g. if someone has a gap
between jobs. However, many CGT taxpayers will not be making multiple disposals of residential property in the year so, if the change is adopted, there may be no opportunity to adjust the CGT amount in the year, due to losses for example.
The statement also mentions the risk of individuals not reserving a sufficient amount of the proceeds to pay the tax as a further reason. While it is clear that failure to plan for the payment could be an issue, it is not clear why this is particularly relevant to residential property. The payment dates for all assets subject to CGT follows the same pattern, yet the same concerns have not been raised for commercial property or shares. The consultation process following publication of the draft legislation will be important in ensuring these rules are workable and fair. For example, we will need to understand the rate that will be applied in calculating the payment on account given that there is a basic and higher rate of CGT. It may not be clear at the date of sale which rate will be applicable for the individual. Also, it will be interesting to see whether the individual can apply any existing or anticipated capital losses or the annual exemption to reduce the taxable gain for the purposes of calculating the payment on account.
This change is unlikely to make paying the tax simpler and quicker as the Government suggests.
Finally, a 30-day time period could be onerous in many circumstances where, for example, valuations are required to quantify the gain. It will be interesting to see what allowance, if any, will be made in the legislation for these circumstances.
Given the above, the timeline between announcement and introduction of the rules is helpful, providing plenty of opportunity for discussion and revision.
4.2
CGT for non-UK residents disposing of UK residential property
Minor amendments have been announced to the regime of CGT for non-UK residents disposing of UK residential property
From 6 April 2015, non-UK residents disposing of UK residential property were brought within the scope of UK CGT.
Amendments will be made to the regime to:
• eliminate retrospectively from 6 April 2015 a double tax charge that could arise under the rules; • correct an omission from the rules that has been identified with effect from 25 November 2015; • provide HMRC with powers to determine circumstances when a CGT return is not required; and • include CGT on the list of taxes that the Government may collect on a provisional basis.
Comment
Minor amendments to any new regime are not unexpected and it is a welcome sign that HMRC are listening as issues come to light. We hope that any further glitches that emerge will also be corrected.
4.3
SDLT: additional properties
From 1 April 2016 existing SDLT residential property rates will be increased by 3% for purchases of additional properties such as buy-to-let properties and second homes.
Purchases of second homes and buy-to-let properties, will, from 1 April 2016, be subject to SDLT at a rate 3% higher than the normal rate. The SDLT supplement will not apply to corporates or funds making significant investments into residential property. Neither will it apply to purchases of caravans, mobile homes or houseboats. A possible indicator of significant investment is given as a corporate or fund owning more than 15 residential properties. We understand the Government will be consulting on how to exclude situations where a new home is purchased prior to the sale of the previous home.
Comment
Together with the restriction on interest relief on buy-to-let properties, which was announced in the Summer Budget 2015, this can be seen as an attempt to tilt the playing field in favour of first time buyers, although the target of the measures when taken together seems to be predominantly individual landlords rather than corporates. Whether this has any real effect, though, remains to be seen once it is introduced. At the top end of the market, the extra SDLT will be significant. However, at the lower end of the market in particular, it remains to be seen whether the changes will further deter buy-to-let landlords or whether the measure will merely generate additional revenue.
We will need to see the detail on how this will apply, but one would expect there to be exclusions for genuine property development businesses.
4.4
SDLT: changes to the filing and payment process
A consultation in 2016 on changes to SDLT filing and payment process has been announced.
The consultation will, amongst other things, consider a reduction in the filing and payment window from 30 days to 14 days. Any changes will take effect from 2017/18, with the measures being included in Finance Bill 2017.
Comment
As the filing and payment process for SDLT is electronic, the shortening of the filing and payment period to a two week period does not seem unreasonable. However, for those circumstances where a valuation is required to determine the SDLT due, valuations may need to be done in a timelier manner.
4.5
SDLT: certain authorised property funds
From Royal Assent of Finance Bill 2016, seeding relief will be available to exclude SDLT charges on the transfer of properties to property authorised investment funds (PAIFs) and co-ownership authorised contractual schemes (COACs). Changes to SDLT will also be introduced to ensure it does not arise on transactions in the units of these funds.
Seeding relief will be available to PAIFs and COACs for an 18 month seeding period. The relief will only be available for portfolios of at least 100 residential properties with a value of at least £100m, or of at least ten non-residential properties with a market value of at least £100m. There will also be a three year claw back period during which relief will be withdrawn if the fund ceased to qualify as a PAIF or COAC, or the units in the fund are sold.
Comment
We understand this measure is aimed at encouraging the relocation to the UK of property portfolios supporting pension funds in run off that are currently managed offshore. It is only likely to be relevant to substantial
property portfolios. Once this measure is introduced, it will be interesting to see whether it will be extended to other tax-favoured property investment vehicles, such as real estate investment trusts.
4.6
Annual tax on enveloped dwellings (ATED) and 15% rate of SDLT: reliefs
The Government has announced extension to reliefs from ATED and 15% SDLT charges on some high value residential property, to take account of property transactions currently caught by these charges. The new reliefs will apply from 1 April 2016.
The new reliefs will apply to non-natural persons such as companies acquiring high value residential property as a result of equity releases schemes, or for conversion to non-residential use, for example, conversion of a residential property to a factory or school. There will also be an extension to the relief available where a property is occupied by employees.
Comment
The ATED and 15% SDLT charges on non-natural persons acquiring high value residential property operate by initially including all properties within scope, with some exemptions, and then excluding certain categories of property by relief. Since the charges were introduced in 2013, it has become apparent that the reliefs do not exclude all those properties that were intended to be outside the scope of the charges. The announcement of these new reliefs is a welcome improvement, particularly in view of the reduction in the threshold for a high value residential property from April 2016, to those over £500,000.
5.
Employment taxes and payroll
5.1
Apprenticeship levy
Originally announced in the Summer Budget 2015, and following a consultation, the Government will introduce the apprenticeship levy in April 2017. It will be set at a rate of 0.5% of an employer’s paybill and will be payable through PAYE. It will apply to all employers across all sectors.
Each employer will receive an allowance of £15,000 to offset against their levy payment, resulting in only employers with total paybill in excess of £3m being subject to the charge. It is not precisely clear how the levy will operate, but the indications are that:
• employers will pay their levy into their digital account;
• there will be a two year period in which employers can access their contributions to train apprentices; and • the value of the account will be topped up, possibly by 10%, as the funds are used with the top up being
funded from the unused balances of other employers’ accounts.
Comment
While the new charge will be imposed from April 2017, Government estimates indicate around 98% of employers will end up paying nothing as a result of the allowance.
We will need to see the detailed provisions on precisely how the measure will work and the tax treatment of levy contributions and apprenticeship training costs. The main driver of the scheme appears to be increasing the level of business skills in the UK workforce. However for the 2% of employers paying the levy, this is in effect an additional payroll tax and could perhaps lead to those employers reconsidering how many new jobs they can afford to create.
5.2
End of relaxation of real-time reporting (RTI) obligations
The Government has confirmed that the two year temporary relaxation of RTI reporting obligations for micro-employers will end on 5 April 2016, as planned, to align their treatment with that of other micro-employers. This relaxation currently allows micro-employers to report payments they make each tax month, on or before the last payday in the tax month rather than on or before each and every payday.
Comment
Many employers have changed their working practices to make their RTI obligations easier to meet. Small employers currently relying on the relaxation may also need to do the same. This may involve paying staff less frequently, where contracts permit the change.
5.3
Salary sacrifice
Growth of salary sacrifice schemes is still a concern of the Government.
The Government has confirmed it is still concerned over salary sacrifice schemes and will gather further evidence from both employers and other sources to help decide what action it will take over them.
Comment
Salary sacrifice arrangements are often implemented by employers as part of flexible benefit arrangements. They may allow employees to structure their reward packages in a way which best meets their lifestyles and could include, for example, taking advantage of corporate discounts. Such schemes usually result in employees giving up salary, which is subject to income tax and NIC, in exchange for benefits, some of which may be income tax and/or NIC free. It is this loss of revenue that is likely to be of concern to HMRC.
5.4
Diesel supplement for company car benefit to remain
The Government has announced that the 3% supplement used to calculate the benefit-in-kind value of company cars requiring diesel fuel will not change until April 2021 at the earliest.
5.5
Employment intermediaries and tax relief for travel and subsistence
The Government announced during the Summer Budget 2015 that it would legislate to restrict tax relief for travel and subsistence expenses for workers engaged through an employment intermediary, such as an umbrella company or a personal service company (PSC). From 6 April 2016, relief will be restricted for individuals working through PSCs where the intermediaries legislation applies.
Following consultation, proposals will remove tax relief for the cost of home to work travel for workers employed through a PSC. Currently, where PSCs supply temporary workers to end users the workers have a single continuing employment with the PSC and so travel from home is treated as being to a temporary workplace, resulting in the cost of travel being eligible for tax relief. From 6 April 2016, this relief will no longer be available.
Comment
In recent years, there has been a substantial increase in the number of workers engaged through employment intermediaries, including PSCs. Despite HMRC originally setting out the removal of tax relief on travel and subsistence payments to intermediaries in the Summer Budget, this announcement has removed the relief in respect of PSCs only. The measure will remove perceived unfair tax-driven advantages from the labour market, bringing the tax treatment in line with other individuals in employment who are not entitled to claim tax and NIC relief for travel and subsistence costs relating to their regular commute.
5.6
Employee share schemes rules simplification
The Chancellor has announced the introduction in Finance Bill 2016 of technical changes aimed at simplifying the complex tax legislation for both tax-advantaged and non-tax-advantaged share schemes.
The changes will include clarifying the tax treatment of shares and options awarded to internationally mobile employees to ensure, where relevant, the charge to tax will arise under the employee options rules rather than as earnings.
Comment
The tax rules covering this area are detailed and complex often leading to uncertainty of the tax treatment. In view of this, any clarification should be welcomed be employers, employees and their advisers alike.
5.7
Disguised remuneration
The Chancellor announced a further crackdown on ‘disguised remuneration’ schemes. Any changes, where necessary, will be retrospective and take effect from 25 November 2015.
Disguised remuneration schemes often involve complex structures that seek to reclassify monies and benefits that would otherwise be taxed as employment income. This announcement follows on from the introduction of the original disguised remuneration legislation introduced in 2010, which taxes monies and benefits provided by third parties to employees. It was aimed primarily, but not exclusively, at employee trust arrangements. Taxpayers had been given an opportunity up to 31 July 2015 to settle outstanding employee trust cases with HMRC, which is currently litigating unsettled cases. The new rules could seek to strengthen HMRC’s position on litigating historic arrangements as well as widening the net to catch new avoidance schemes.
Comment
The drafting of the disguised remuneration legislation previously introduced was wide and in some respects difficult to interpret. This had the effect of bringing some commercial transactions within its remit, causing uncertainty for taxpayers.
Where possible, we would encourage such changes to be narrowly targeted at specific avoidance schemes in order to reduce the burden of uncertainty on commercial arrangements.
5.8
Taxation of sporting testimonials
Following the consultation that took place in the summer, the Government will now issue legislation to simplify the taxation of sporting testimonials.
Following the March 2015 Budget announcement of the intention to make changes to the taxation of sporting testimonials, including the removal of an extra statutory concession, there was a consultation to assess the impact. The Government now intends to legislate, but with minor changes following the comments received. Under the new legislation all sporting testimonial income will be subject to income tax as will income from benefit matches for employed sportspersons. It will apply where the sporting testimonial is granted or awarded on or after 25 November 2015, and only to events that take place after 5 April 2017. In place of the previous extra-statutory concession, the income will be subject to an exemption of up to £50,000, which will be available for employed sportspersons with income from sporting testimonials that are not contractual or customary.
The Government also noted that it intends to issue further legislation in Finance Bill 2016 so that the NIC treatment of sporting testimonial income will follow the income tax treatment.
Comment
It was apparent that the Government was intent on proceeding with its proposed changes, but the adjustment of the changes to take into account points made during the consultation process are welcome.
5.9
Changes to the taxation of asset managers’ awards
The Government has confirmed it will introduce legislation to determine whether performance rewards received by asset managers will be subject to income tax or CGT.
After a consultation following Summer Budget 2015 on the criteria to be used to determine whether awards arising to investment fund managers should be taxed as income or gains, the Government has confirmed that it will introduce legislation in Finance Bill 2016 that will determine the correct tax treatment. Awards will be taxed as income unless the underlying fund carries on long term investment activity. At this stage, it is not clear how HMRC will determine this.
Comment
This announcement was expected, following the consultation in the summer. We look forward to receiving some further clarity so we can assess the potential impact of this change on the wider industry.
5.10
Review of employment status
The Chancellor announced the Government’s intention to implement the majority of the proposals recommended by the Office of Tax Simplification (OTS) following its review of the legislation and practices surrounding employment status.
The recommendations in the OTS review were wide ranging. These included the introduction of a statutory employment test, aligning tax and NIC, the withholding of tax on gross payments to those not employed and HMRC providing greater guidance.
Comment
This is an area of major uncertainty and concern for employers. It can be costly if they make errors. Any changes that help simplify and clarify this area will be welcome.
5.11
Call for evidence on tax treatment of employer accommodation
Following recommendations from the OTS, the Government will publish a call for evidence on the current tax treatment of employer provided living accommodation.
The current rules surrounding employer provided accommodation are complex and often lead to counter-intuitive results. The value on which employees pay tax often bears little resemblance to the full market rent that would be payable as the value in many cases is based on the 1973 gross rateable value.
In some cases, accommodation can be an excepted benefit where for example, it is necessary for the proper performance of the employment duties. In practice these exceptions can be narrow and difficult to apply. The Government is looking to simplify the legislation, so as to tax accommodation where it would reasonably be considered a ‘perk’ of the job rather than a necessity. Where the accommodation is taxable, the
Government is looking to closer align the taxable benefit to the full market rent.
Comment
Employer provided accommodation has historically been a complex area of taxation. We welcome plans to simplify the exceptions from the charge; we encourage Government to make the exceptions capable of applying to all relevant business sectors.
Aligning the taxable benefit with market rent would be a sensible change provided that the rules do not place too high an administrative burden on employers to re-evaluate the market rent year-on-year. It is important that the new rules do not prejudice employees who are required as a condition of their employment to live in expensive property, for example in central London, without having access to enjoy the accommodation in full.
6.
Business taxes
6.1
Corporation tax in Northern Ireland set for reduction to 12.5%
The Chancellor has confirmed that the conclusion of last week’s talks in Northern Ireland has opened the door for the devolution of corporation tax and that the parties involved intend to set this at a rate of 12.5%.
6.2
Taxation of loan relationships and derivatives
The Government plans to legislate and update the tax rules for company debt and derivative contracts so that they interact as intended with new accounting standards.
The substantial changes in Finance (No 2) Act 2015 intended to establish a new approach for the tax treatment of corporate loan and derivatives in alignment with the new FRS102 accounting standard. Those new rules have revealed various anomalies, which, we assume, the proposed changes will address.
Comment
The tax rules for company loans and derivatives have always been perceived as simple in concept but complex in detail and the recent changes have illustrated the point perfectly. More tweaking of the rules will
undoubtedly follow.
6.3
Corporation tax: restitution interest
The Government has introduced a special 45% rate of corporation tax on restitution interest.
There has been a long running case on whether tax repayments as a result of unlawful collection or mistake of law by HMRC attract simple or compound interest. The latter is significantly more expensive for the
Government, and the result is that the Government has provided that a special 45% rate of corporation tax on income is to be applied to such restitution interest payable by HMRC.
Comment
While this measure was legislated for in Finance (No. 2) Act 2015 section 38, having been introduced very late on in the legislative process, and so is not new news as such and is already in force, it has been included in the Treasury’s table of policy decisions in the Autumn Statement 2015 Blue Book. This indicates that the measure expects to raise £270m in the current tax year.
6.4
Large business compliance and tackling the highest risk businesses
At Summer Budget 2015, the Government announced new measures to improve large business tax compliance, with a consultation over the summer to refine the detail of the measures. Legislation is now to follow.
The Government will legislate in Finance Bill 2016 to introduce:
• a new requirement that large businesses publish their tax strategies as they relate to or affect UK taxation; • a special measures regime to tackle businesses that persistently engage in perceived aggressive tax
planning;
• a framework for cooperative compliance.
Comment
This is all part of an overall HMRC strategy to shape companies’ behaviour in relation to taxation. This initiative is currently focused on large businesses but the expectation in time is that these requirements may well cascade down to small and medium sized enterprises (SME)’s.
6.5
Change in scope of the UK bank levy
The Government has confirmed that it will consult on changing the scope of the bank levy to UK bank operations starting from 1 January 2021, with any change to be legislated in this Parliament.
After the rate of bank levy was increased in Budget 2015, Summer Budget 2015 then included the
announcements of a phased reduction in the rate, together with a proposal to look at changing the scope of the charge from 1 January 2021. The change in scope being to ensure that, for UK headquartered banks, the tax is only assessed on UK balance sheet liabilities.
Comment
The policy and consultation is welcome and reflects the stated policy objective for the taxation of banks. The objective is to ensure that the banks’ contribution is aligned with profit and capital accumulation, and also linked to activities here in the UK.
6.6
Company distributions
The Government is consulting on company distributions and the transactions in securities rules, including a targeted anti-avoidance rule.
The Government will publish a consultation on the rules for company distributions later this year.
More anti-avoidance legislation is also to be introduced in the form of a further amendment to the transactions in securities rules and a targeted anti-avoidance rule to prevent those converting income into capital so as to avoid the tax charge.
Comment
Legislation that revamped the corporate tax treatment of dividends was introduced as recently as 2009. We await the Treasury new proposals with interest. The rules on transactions in securities were relaxed only as recently as 2010.
6.7
Capital allowances and leasing
Effective from 25 November 2015, there will be legislation in Finance Bill 2016 to prevent companies using lease arrangements to lower the disposal value of plant and machinery artificially.
Payments received for taking responsibility for tax deductible lease related payments will be treated as taxable income.
The legislation is intended to counteract two situations.
The first is where a company uses an artificially low disposal value for capital allowances and a tax advantage is one of the main purposes of the arrangements. That low value will not be accepted.
The second is where consideration is received in a non-taxable form in return for agreeing to take over tax deductible lease payments. The measures now bring the receipts into tax as income.
Comment
HMRC has closed a loophole that was not widely used in practice.
6.8
OECD BEPS: anti-avoidance measures targeting hybrid instruments
Anti-avoidance measures will be introduced in Finance Bill 2016 to prevent multinational enterprises from mitigating tax through the use of certain cross-border business or finance structures. This is further evidence of the Government adopting the OECD Base Erosion and Profit Shifting (BEPS) Action Plan, which specifically targets such structures.
Following consultation, the Government will introduce legislation with effect from 1 January 2017 to implement the Action 2 from the OECD’s base erosion and profit shifting (BEPS) project, which addresses the use of hybrid mismatch arrangements. These new rules will prevent multinational enterprises from avoiding tax through the use of certain cross-border business structures or finance transactions.
Comment
This measure is further evidence of the Government’s support of the OECD’s BEPS project. We will need to review the detailed legislation once published to understand how widely these new measures will apply (many of the BEPS initiatives only target the very large multinational groups), and how they will interact with the UK’s existing anti-avoidance rules for hybrid instruments.
6.9
Related parties rules: partnerships and transfers of intangible assets
As an anti-avoidance measure, the Government will amend the intangible fixed asset rules to clarify the tax treatment on transfers of assets to partnerships with immediate effect.
This further and immediate anti-avoidance provision is to reduce the scope of allowable deductions for intangible amortisation, which involves partnership arrangements used to obtain relief in a way that was not intended by Parliament.
These revisions will include specific provisions that apply the commencement rules to partnerships. This will confirm how the intangible commencement rules have effect with regard to intangible fixed assets that are acquired or disposed of by a partnership. This will prevent corporates from using partnership arrangements to circumnavigate the previous commencement rules.
The updated rules will be effective immediately. The Government will also potentially review the intangible regime further as part of the business tax roadmap.
Comment
The restrictions to corporate intangibles have previously focused on abolishing tax deductions for newly acquired goodwill, whether by third party acquisition or incorporation. This is a further restriction on intangible deductions, but in relation to partnership goodwill.
7.
Indirect taxes
7.1
VAT measures
The Autumn Statement announced VAT measures concerning sixth form colleges, the reduced rate of VAT on energy saving materials and VAT on sanitary products.
Sixth form colleges will be given the opportunity to become academies, which will allow them to recover VAT incurred on their non-business activities.
Consultation is scheduled on the legislation for Finance Bill 2016 to ensure the reduced rate of VAT (at 5%) on energy saving materials is maintained in line with EU law.
A new fund has been set up to donate a sum equivalent to the VAT collected on supplies of sanitary products, estimated at £15m pear year, to support women’s charities, until the end of the Parliament or until the EU rules are amended to enable the UK to apply a zero rate of VAT.
Comment
Enabling sixth form colleges to convert to academies to facilitate their access to input VAT recovery will bring them into line with local authority schools and academy sixth forms which are already entitled to recover VAT. The proposed consultation on VAT on energy saving materials follows the judgement in the EC Commission v
United Kingdom case earlier this summer where the Court of Justice of the European Union (CJEU) found that
the reduced rate relief was too widely applied in the UK to all housing and should be restricted to social housing.
The new fund is a pragmatic way of dealing with an issue that otherwise requires EU permission to implement.
7.2
Stamp duty and stamp duty reserve tax (SDRT) on DITMOs
The higher stamp duty rate of 1.5% will apply to the higher of the market value or strike price of options that result in shares being transferred to a clearance service or depository receipt issuer. Such options are referred to as deep in the money options (DITMOs). The new rate will apply to options entered into on or after 25 November 2015 and exercised on or after Budget 2016.
When shares were sold on the exercise of an option, any SDRT liability was charged on the exercise price (the amount paid by the option-holder to purchase the shares under the option) as opposed to the option premium (the amount paid by the option-holder to enter into the option). This meant that acquiring shares under an option where the strike price was much lower than the market value (and the premium correspondingly higher) was more efficient from a SDRT perspective than a straightforward acquisition of the shares at market value. The introduction of this measure should prevent this method of avoiding of SDRT.
Comment
We understand that HMRC has been aware of this avoidance for some time and will have already discussed the issue with market participants. This measure is not unexpected and should help retain the Government’s tax base in this area.
8.
General tax matters
8.1
Making tax digital – mandatory quarterly business reporting
Not only was the plan to replace the existing annual tax return with digital accounting for individuals and the self-employed reiterated, but the Autumn Statement confirms that most businesses and landlords will be required to report their tax affairs at least quarterly by 2020.
As part of the 2015 Budget, it was announced that the Government aims to modernise and simplify the tax system by replacing the existing tax returns with ‘digital accounts’.
This was reiterated in the Autumn Statement, with an investment of £1.3bn to be made to provide the infrastructure for this system. This will include software and apps along with support for users.
The intention is that most businesses, and not necessarily just small businesses, including the self-employed, and landlords will be required to update their digital account on a quarterly basis. Those individuals who are employed or in receipt of a pension will not be under the same requirement, unless they have secondary incomes of more than £10,000.
Further announcements are expected shortly, followed by a period of consultation.
Comment
While the announcement was broadly welcomed after Budget 2015, there is now a concern that quarterly reporting will actually increase, at least in the early days, the compliance burden for many.
Currently, many businesses and individuals only need to engage with HMRC in respect of corporation tax or income tax on an annual basis via the tax return and so switching to quarterly reporting is likely to be onerous. Those registered for VAT may already draw up quarterly management accounts, but turning that into a return of income is another matter. In addition, many groups, such as landlords and smaller enterprises, will not compile management accounts.
It is not clear if secondary income includes investment income. If so, many individuals could be brought into the quarterly reporting regime and have the difficulty of capturing all their investment information every three months.
The understanding was that these groups would benefit from the new digital system, although now that is less clear.
Further details are to follow and it is hoped that the consultation process will be robust and offer sufficient scope to ensure the new system is fit for purpose.
8.2
Simple assessment
A new process will be introduced allowing HMRC to calculate and assess a taxpayer’s tax liability without the need for them to submit a self-assessment tax return.
Legislation will be published to introduce a new process for tax collection. In simple cases, where HMRC holds all the data it needs to calculate an individual’s tax liability, an assessment will be raised and issued without the need for that individual to file a tax return.
The assessment will include a legally-enforceable demand for payment. The individual can challenge or appeal the calculation, if necessary.
It is intended to introduce this method of simple assessment into effect in the 2016/17 tax year.
Comment
Although simplification is welcomed, it will be important to see what safeguards are included in the new system. Those falling into the category of ‘simple cases’ are likely to be unrepresented by an agent and, as such, may need sufficient support to enable them to check that the assessment raised is accurate.
Although the actual details are awaited it would appear that this is an administrative adjustment to
accommodate the concept of ‘digital accounts’ announced at the 2015 Budget and further expanded upon in this Autumn Statement. The idea of these accounts is to simplify the self-assessment system by using the information HMRC automatically receives.
8.3
Gift aid small donations scheme
The Government is to review the gift aid small donations scheme to ensure that it is operating as effectively as possible.
The gift aid small donations scheme (GASDS) allows charities and community amateur sports clubs to claim gift aid relief on cash donations of up to £20 without a gift aid declaration from the donor. An annual limit applies; this will be £8,000 from April 2016.
A review will take place from December 2015 to ensure that the scheme is operating effectively.
Comment
The complexity surrounding GASDS has been criticised by the charity sector for some time so they will be pleased to see this review taking place.
It is hoped that the GASDS’s aim of administrative relaxation can be better reflected following the review. This would allow smaller charities, who currently find the administration burdensome, to benefit under the scheme.
8.4
Penalties for arrangements tackled by the general anti-abuse rule
New penalties of 60% of the tax due will be introduced in Finance Bill 2016 for arrangements successfully tackled by the general anti-abuse rule (GAAR).
A penalty of 60% of the tax on all arrangements successfully tackled by the GAAR, together with small changes to help tackle marketed avoidance schemes, will be introduced in Finance Bill 2016.
Comment
A considerable element of judgment is required to determine whether the GAAR applies, and there are involved procedural measures before HMRC can invoke the GAAR counteraction. The Government is projecting that £10m will be raised in 2016/17. This may imply that HMRC is close to starting the GAAR counteraction process on existing arrangements.
8.5
Serial avoiders
The Government is to continue with its intention to clamp down on taxpayers who persistently use failed avoidance schemes.
The Government will introduce new penalty measures for those who regularly enter tax avoidance schemes that are defeated by HMRC. These measures include restricting access to tax reliefs, publishing the names of such avoiders and introducing special reporting requirements.
The Promoters of Tax Avoidance Schemes regime will also be widened to capture those whose schemes are regularly defeated by HMRC.
8.6
Continued clampdown on tax evasion
The Government has announced that it will establish new measures in its continued fight against tax evasion.
The Chancellor has set out the Government’s intentions to introduce:
• a new criminal offence that will remove the requirement to prove intent for the most serious cases of failing to declare offshore income and gains;
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• increased civil penalties for those who deliberately engage in offshore evasion; and
• a new criminal offence for corporates who do not prevent their agents from facilitating tax evasion through the use of an individual or an entity.
The Government will also consult on introducing a new requirement to correct past offshore non-compliance and an associated penalty regime.
It has also been announced that HMRC is looking to gather evidence to understand better how the trend away from cash will impact future tax compliance and, in particular, evasion and the operation of the hidden economy.
Comment
This represents another step in the Government’s campaign to tackle tax evasion.
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