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Adviser Q&A: Autumn Statement predictions

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This year’s Autumn Statement will be delivered on 5 December, a day later than originally announced.

What announcements are expected in relation to CGT and non-residents?

Press reports suggest that the chancellor is considering a CGT charge for non-UK residents owning UK property. Any new charge would probably apply to non-resident trusts as well as individuals and it is likely to apply only to residential property. The impact on particular individuals will depend upon the terms of any double tax treaty between the UK and the country of residence of the individual. In some cases, the tax burden on the non-resident will not be increased – the tax revenue will simply accrue to the UK, rather than another jurisdiction. However, such a fundamental extension to the UK CGT charge could not be introduced with immediate effect; it would be subject to consultation and it could be several years before the full change had effect. It is likely to apply to gains arising after it is introduced.

Are any corporate tax changes expected?

The government has been consulting on changing the rules on loans to participators in close companies, which tax close companies on any loan that is still outstanding more than nine months after the end of the accounting period. This charge is repaid if and when the loan is repaid. Anti-avoidance legislation was introduced in this year’s Finance Act to block some schemes exploiting the current rules. We hope for further clarity on where this is going, as the rules introduced this year are causing undue hardship for groups that happen to be accidentally close, but are unable by these rules to restructure their debt.

Interest deductions have been attracting a significant amount of media attention. The government may want to wait for the outcome of the OECD’s base erosion and profit shifting (BEPS) project before changing the regime. Alternatively, there is a chance that the media coverage may result in a tightening of the debt cap or we may see a revival of the proposals to restrict the benefits of eurobonds issued intra group.

The consultation on modernising corporate debt closed in August, so we are likely to get an update on what is proposed, indicating which parts of the reform may make it into the Finance Bill 2014 and which may slip.

Following the recent major changes to the tax regime for controlled foreign companies (CFCs), we are unlikely to see any substantial change here. However, there could be some changes to the finance company partial exemption.

The recently introduced patent box is being challenged by the European Commission as amounting to harmful tax competition. The challenge is unlikely to go anywhere unless the there is a wider review of such incentives, as several other countries have similar systems, so the UK is not out of line. However, we may see a few tweaks to the regime to make it slightly more palatable to the Commission.

Where are we up to with the partnership changes?

The government has been consulting on changes to two planning aspects of the tax rules on partnerships, namely: making individuals members of an LLP to avoid employment treatment; and the use of corporate members in partnerships to get tax advantages.

We are expecting HMRC to drop the ‘first condition’ that would tax partners as employees on a presumption of employment unless a partnership is proved – this is back to front as compared with the existing general rule of being presumed a partner, unless an employee. We also expect to see the carve out of certain commercial arrangements from the mixed corporate and individual partnership profit and loss allocation proposals.

Are we expecting any announcements on share incentives?

We expect details of the new regime for HMRC approved employee share plans, whereby companies will ‘self-certify’ the compliance of their plan with the legislation, rather than seeking prior approval from HMRC. Guidance is expected as to how HMRC expects companies to manage points of difficulty or uncertainty in relation to the application of the legislation.

We hope that HMRC will provide greater certainty in relation to the tax treatment of equity awards held by internationally mobile employees (IMEs), following a consultation earlier this year on potential changes and to reflect an apparent change in approach by HMRC. It is a notoriously complex area in which companies have to invest disproportionate time. We hope that HMRC brings in measures which alleviate this burden by making the tax treatment of equity awards held by IMEs consistent with the tax treatment of other earnings.

What about tax avoidance?

We can expect to see the usual announcements blocking some highly technical schemes that have been disclosed under DOTAS, although our research has shown that the number of schemes disclosed to HMRC in 2012/13 has fallen to its lowest point since the regime was introduced.

The Raising the stakes on tax avoidance consultation closed in October. One of the proposals was to introduce stiff penalties for users of avoidance schemes who do not settle their tax affairs after similar cases have lost in court or tribunal. We are waiting to hear what form the final rules will take. The government might also want to build on the Cotter decision and give HMRC broader powers to enforce payment of the tax pending the outcome of a dispute where tax avoidance is alleged.

It would be nice if HMRC were to answer calls for an amnesty for legacy avoidance, but we are not holding our breath.