In a surprise move the Chancellor moved his autumn statement from the usual Wednesday to a Thursday. Starting with a note of caution on the economy, he was quick to highlight some of the recent successes such as falling unemployment and positive revisions to growth forecasts.
Once again the Chancellor re-emphasised his commitment to tackling tax avoidance and evasion, but for the first time he referred to the need to combat ‘errors’ in the tax credits and welfare systems as well as keeping the budget “fiscally neutral”. As always the “Devil” will be in the detail when the draft Finance Bill is published on 10 December, but for now we can highlight some of the major changes as follows:
Corporation Tax
The rules which require companies to take into account all ‘associated’ companies for the purposes of proportionately reducing the tax rate bands will be simplified with effect from April 2015, so that only those companies in a 51% group relationship will need to be taken into account. This is good news for Accountants and businesses who unwittingly fall foul of the rules due to ‘loan relationships’, in essence it will have very little effect as a flat 20% rate of corporation tax is being introduced.
Employment Taxes
From April 2015, Employer’s National Insurance will be scrapped for employees under the age of 21, other than those earning in excess of £42,285 per annum.
Employee Share Ownership
John Lewis was held up as a model of indirect employee ownership through an employee share ownership trust and three new reliefs were announced to encourage more companies to implement similar arrangements:
- From April 2014, where a disposal of shares results in a company coming under the control of an employee ownership trust, the disposal will be relieved from capital gains tax.
- There will also be an exemption from inheritance tax on transfers of shares into employee ownership trusts, subject to certain qualifying conditions being met.
- From October 2014, bonus payments of up to £3,600 will be exempt from income tax where the paying company is indirectly controlled by its employees through an employee ownership trust.
The Chancellor also widened the availability of employee share ownership through other schemes by announcing amendments to Share Incentive Plans (‘SIPs’) and Save As You Earn (‘SAYE’) schemes:
Business Rates
In a welcome move the Chancellor looked to position the Government as allies of the high street. He referred to the threat posed by giant online retailers, who are able to benefit from economies of scale and far lower overheads. In recognition of the rising costs of running and weakening sales revenues, the Chancellor will retain the cap on RPI increase in business rates of 2% for a further year to 1 April 2015.
The Chancellor will also introduce a business rate discount of £1,000 for retail and food and drink premises with a rateable value of less than £50,000. This discount will apply for two year from 1 April 2014.
The Chancellor also spoke of the problem of unoccupied buildings on high streets. In order to counter this, a new 50% business rates relief will be available for the first 18 months, where a business moves into premises which have previously been vacant for one year or more. This reoccupation relief will be a temporary measure and will be available from 1 April 2014 to 31 March 2016.
Individuals
Personal allowances are to rise to £10,000 from April next year. This increase is to be subsidised through a corresponding reduction in the basic rate limit to £31,865, as previously announced.
From April 2015, married couples and civil partners may elect to transfer up to £1,000 of one spouse or civil partner’s personal allowance to the other spouse or civil partner (not available to higher rate taxpayers). This will increase the potential to use both spouses’ or partners’ allowances.
The Principal Private Property Relief (‘PPR’) allows homeowners to dispose of their private residence without suffering capital gains tax. There has been an exemption for any gains made in the 36 months following vacation of the property to also be exempted but yesterday this relief was cut to just 18 months.
Non-residents
Disposals of UK residential properties by non-residents will be subject to capital gains tax from April 2015. Consultation on this measure will commence early in the new year.
Charities and social ventures
A consultation process on how to simplify the rules surrounding Gift Aid donations, and increase the role of intermediaries in claiming gift aid will commence shortly.
From April 2014, a tax relief for equity and certain debt investments in social enterprises (such as charities and community interest companies) will be introduced. This will be preceded by a social investment ‘roadmap’ in January 2014.
Anti-Avoidance
During 2013, HMRC carried out a consultation process in respect of mixed membership partnerships, typically those involving individual partners and companies in which the individual partners are also shareholders. HMRC considers that taxpayers are using such arrangements to avoid income tax (for example, by directing profits to the corporate member, and therefore being subject to the lower rates of corporation tax, whilst arrangements are in place to allow the individual partners to enjoy the profits). Anti-avoidance legislation will be introduced to counter the income tax savings achieved. This legislation will take effect from April 2014, unless arrangements are tax motivated, in which case it will apply from 5 December 2013.
There were other announcements made aimed at making the whole Tax Avoidance industry much less attractive to promoters and clients with further consultations due over the coming months.
Evasion
Over recent months, HMRC has been gathering data through various information sharing arrangements with overseas territories. A strategy is to be implemented early in the New Year to exploit this data. At present, this is thought to include punitive penalties for taxpayers who have been found to have evaded tax by hiding money offshore.
Broadly speaking there have been some good incentives for smaller businesses (especially retail) but it remains to be seen if the other measures announced will increase employee share ownership, or encourage further investment for growth by UK business. As always, there will no doubt be a few surprises when the draft legislation is announced and we will brief our clients if anything significant comes to light.
As always, for more information on yesterday’s announcements, tax updates and general assistance please contact your local Burgis and Bullock office, call us on 0845 177 5500 or use our online form.