Market leading insight for tax experts
View online issue

Autumn Statement 2013: Summary

printer Mail
Speed read

Key announcements that were new for the Autumn Statement 2013 include:

  • capital gains tax on non-residents disposing of UK residential property;
  • employment intermediaries – amendments to prevent income tax and NIC avoidance through ‘contrived contracts’ involving employment intermediaries such as personal service companies;
  • dual employment contracts – provisions to prevent the artificial splitting of duties between UK and non-UK employment contracts;
  • rules obliging users of some tax avoidance schemes (follower cases) to pay the disputed tax before their case has been finally settled;
  • changes to the grouping rules to extend the application, and prevent the artificial circumvention, of the worldwide debt cap; and
  • CFCs and profit shifting – a new exclusion from the definition of a qualifying loan relationship, and an amendment to one of the existing exclusions in the finance company partial exemption (both provisions taking immediate effect).

For a printable PDF of our full Autumn Statement coverage, click here.


In what was his fourth Autumn Statement, the chancellor of the exchequer, George Osborne, was at last able to point to some more encouraging statistics around the broad economy and its protracted recovery from the credit crunch and economic crisis. Two key factors underpinning many of the announcements made today were that:

  • the forecast for economic growth for 2013 more than doubled from its official estimate of 0.6% at the time of Budget 2013 in March to 1.4% today. It is expected to continue this upward trend to reach 2.7% in 2017 and 2018 (Autumn Statement 2013, table 1.2); and
  • there has been a reduction in the official figures for public sector net borrowing during the 2013/14 financial year. This is now forecast to be 6.0% of GDP for 2013/14, to fall to 4.0% by 2015/16 and to reach 0.1% by the end of the next parliament in 2018/19 (Autumn Statement 2013, table 1.4). Government borrowing in 2013/14 will, at £111bn, therefore be £9bn lower than originally forecast in Budget 2013.

In effect, the chancellor was able to say that both of the core indicators of the UK’s economic performance and stability are now moving in the right direction and are likely to continue to do so — stating that he was ‘securing the recovery’ and even anticipating, for the first time in a long time, the possibility of a small budget surplus (1.6% of GDP) towards the end of the new parliament in 2018/19 (Autumn Statement 2013, Table 1.4).

Even so, the UK’s fiscal ‘gap’ is still huge and the global economy remains in a state of shock and fragility; the challenges that lie ahead remain significant. The chancellor has interpreted the improvement in the various UK economic indicia as proof that his medicine has been working; and, therefore, in order to ensure the economy fully recovers and continues to grow, there is a need to stay the course. Austerity, prudence and having the confidence to continue to take ‘difficult decisions’ all remain the order of the day.

Although the Autumn Statement has traditionally been a showcase for the latest economic forecast from the Office for Budget Responsibility (OBR), with major tax announcements and changes being reserved for the Budget the following spring, the distinction has become increasingly blurred in recent years. The Autumn Statement has, in effect, become established as a mini-Budget.

That said, very little came as too much of a surprise in relation to announcements on tax. With the increased emphasis placed on public consultation as part of the legislation making process, 2013 has seen an unprecedented number of consultations open and close over the summer. The Autumn Statement represents a natural opportunity to announce the outcome of the majority of these consultations and to release the draft legislation that will form part of Finance Act 2014.

That said, with the current public focus on tax as a highly charged political issue, the Autumn Statement reflects the government’s emphasis on continuing to ensure that taxpayers ‘pay their fair share’, with the Chancellor announcing ‘the largest package of measures to tackle tax avoidance, tax evasion [and] fraud ... so far this parliament’; it is hoped that these will raise (or rather protect) more than £9bn over the next five years.

This all comes by way of reinforcing efforts to tackle tax evasion, avoidance and aggressive tax planning – an area in which the government is keen to emphasise that it is making some significant progress. The Autumn Statement 2013 (at para 1.298) evidences this success by highlighting that the number of schemes disclosed under the disclosure of tax avoidance schemes (DOTAS) regime ‘fell by almost 50% between 2011/12 and 2012/13 ... with only 17 schemes disclosed in the six months to September 2013’.

Draft clauses, for inclusion in the draft Finance Bill 2014, are expected to be published next Tuesday, 10 December 2013.

Business and enterprise

Worldwide debt cap

The worldwide debt cap (WWDC) restricts interest deductions claimed by companies in the UK to no more than the total financing costs of its worldwide group. The debt cap applies to companies in worldwide groups, but only if a gateway test is failed (when the amount of net debt in the UK exceeds 75% of the group’s gross debt). The regime is contained in TIOPA 2010 Part 7.

The Autumn Statement 2013 (at para 2.118) announces two changes to the regime concerning:

  • grouping rules; and
  • regulation-making powers.

Grouping rules: The current regime operates by reference to worldwide groups that contain at least one UK resident company that is a ‘relevant group company’ (RGC). At present, the definition of RGC for these purposes broadly reflects the general grouping rules for group relief (in CTA 2010 Part 5).

The changes announced today ‘relax’ these rules, making it clear that UK tax-resident companies that do not have ordinary share capital (and therefore would fall outside a group relief group) can be treated as an RGC for the purposes of the WWDC, and so are brought within the scope of the regime. In addition, by amending the definition of ‘75% subsidiary’ for the purposes of the WWDC, the indirect ownership of companies by the ultimate parent of the worldwide group can now also be traced through companies that do not have ordinary share capital.

As a result of these changes, intended to ‘improve the effectiveness’ of the regime, the potential application of the WWDC is extended and its effect cannot be artificially circumvented. As a result of the divergence from the group relief rules, extra care will now be needed when applying the group membership tests for the WWDC.

Regulation-making powers: At the same time, the special regulation-making powers contained in the WWDC regime are being changed, allowing regulations to be made that specify the conditions that will need to be met by WWDC group companies which elect to transfer their WWDC liabilities to other group members.

This minor amendment should allow such regulations to ensure that the impact of the WWDC regime is reduced on companies that are involved in whole business securitisation, by allowing WWDC liabilities to be passed around the group so that the companies remain ‘bankruptcy remote’.

This relaxation is likely to be welcomed and will remove the possibility that the regime might apply in an area in which it is not intended to have effect.

The changes made to the grouping rules have effect for accounting periods starting on or after 5 December 2013.

The change to the regulation-making powers will have effect on or after the date that Finance Bill 2014 receives royal assent.

Details of the proposals, along with draft legislation, can be found in the Changes to the debt cap provisions Tax Information and Impact Notice (TIIN), published on 5 December 2013.

Loan relationships and derivative contracts

A number of announcements were made in relation to the taxation of corporate debt and derivative contracts.

Modernising the taxation of corporate debt and derivative contracts: The government announced, at Budget 2013, that it would carry out a review of the loan relationships (corporate debt) and derivative contracts regimes, with the combined aims of redesigning them to be simpler, clearer and more resistant to tax avoidance.

The Autumn Statement 2013 contains several specific (and relatively narrow) announcements that the government will introduce legislation:

  • to enhance the anti-avoidance provisions (in CTA 2009 s 492) in order to prevent abuse of, and to clarify, rationalise and (in certain circumstances) disapply, the ‘bond fund’ rules. Broadly, this anti-avoidance rule applies where the loan relationships regime interacts with the specialist tax regimes for authorised investment funds (AIFs) and offshore funds. In short, a company’s holdings in AIFs and offshore funds are not normally within the scope of the loan relationships regime. However, to prevent companies using AIFs as vehicles to circumvent the corporate debt regime, certain holdings giving rise to interest distributions (ie in effect, distributions received from a ‘bond fund’) are brought within the regime by treating the holdings as rights under a creditor relationship, brought into account using a fair value basis of accounting. The anti-avoidance provision is triggered where the investment was made (or the liability was incurred) with a ‘relevant avoidance intention’, ie where the company makes the investment in order to create (or increase) debits or eliminate (or reduce) credits;
  • to clarify and rationalise the taxation of corporate partners where loan relationships and derivative contracts are held by a partnership; and
  • to allow, in certain circumstances, corporate investors to disapply the ‘bond fund’ rules.

Details in each of these areas is awaited. Legislation implementing any changes may be introduced as part of FA 2014 but may be delayed to FA 2015, although any simplification of what are complex rules will be broadly welcomed (Autumn Statement 2013, para 2.120).

Release of debts: The general rule under the loan relationships regime is that credits and debits arising to a company from its loan relationships brought into account for tax purposes are those shown in its GAAP compliant accounts for that period. The general rule, however, does not apply in all circumstances. In certain important areas, special rules require the tax treatment of a company’s loan relationships to depart from their treatment in the accounts. One area where, subject to certain special exclusions, the tax treatment ‘departs’ from the accounts is where the relevant loan relationship is ‘released’, ie where the debt is written off or forgiven in part or its entirety.

Where the rules apply, generally in circumstances connected with a corporate rescue, the debtor does not need to recognise a credit (and so won’t be taxed on the ‘profit’ realised as a result of the release).

The government has confirmed that, with effect from 26 November 2013, these rules will be extended so that credits arising on a release will not be required to be brought into account, where that release occurs as a result of the application of any of the stabilisation powers contained in Banking Act 2009 Part 1 (Autumn Statement 2013, para 2.148).

Derivative contracts – contracts for differences: In a very minor amendment that will extend the scope and application of the derivative contracts regime (contained in CTA 2009 Part 7), the government has announced that the definition of ‘contracts for difference’ in the corporation tax derivative rules will be widened to include ‘investment contracts’ and ‘contracts for difference’, as introduced in the Energy Bill (currently at the ping-pong stage in its progress through parliament) (Autumn Statement 2013, para 2.81).

Bank levy

The chancellor announced that legislation will be introduced in Finance Bill 2014:

  • to set the full rate of the levy to 0.156%, with effect from 1 January 2014 (Autumn Statement 2013, para 2.82). The announcement of this rise in the rate has already led to concerns that some banks might consider redomiciling outside the UK, and that it could affect the availability of loans; and
  • to make certain other amendments to the bank levy, including amending the base in respect of which the bank levy is charged, with effect from January 2015 (Autumn Statement 2013, para 2.83). This follows a review of the bank levy earlier in 2013.

Transfer pricing compensating adjustments

As previously announced, the government has confirmed its intention (Autumn Statement 2013, paras 1.303 and 2.127) to introduce legislation in Finance Bill 2014 (with effect from 25 October 2013) preventing individuals from claiming compensating adjustments under the transfer pricing legislation (in TIOPA 2010 Part 4) in relation to transactions with companies and, in certain circumstances, treating excess interest payments received by individuals as dividends (subject to income tax at the dividend rate).

Creative industries

Following the introduction of corporation tax relief for animation and high end TV from 2013 (CTA 2009, Part 15A), the Autumn Statement 2013 contains two further announcements for the creative industries:

  • new corporation tax relief for theatre. The government will consult in 2014 on the introduction of targeted tax relief for commercial theatre productions and theatres investing in new works or touring productions to regional theatres (Autumn Statement 2013, paras 1.190 and 2.87); and
  • extended corporation tax relief for film (Autumn Statement 2013, paras 1.190 and 2.88):
    • including provisions in Finance Bill 2014 to increase from April 2014 (subject to state aid approval) the amount of the payable tax credit (in CTA 2009 s 1202) to 25% on the first £20m of qualifying UK expenditure. This will be capped at 80% of total qualifying expenditure for large budget (as well as small budget) films and continue at 20% thereafter (ie increasing the maximum effective rate of the film tax credit from 16% to 20% on the first £20m of qualifying spend for large budget films);
    • reducing the minimum UK expenditure requirement from 25% to 10%;
    • modernising the cultural test to align it with other member states’ tests and support visual effects and wider film production; and
    • seeking state aid clearance (when renotifying the regime in 2015) to increase the rate of the film tax credit to 25% for all qualifying expenditure (ie including expenditure on large budget films above £20m).

Associated companies rules

The government will introduce legislation in Finance Bill 2014, to have effect from 1 April 2015, to remove the current rules on associated companies and replace them with simpler rules based on 51% group membership (Autumn Statement 2013, para 2.114). From 1 April 2015, the main and small profits rate of corporation tax will be harmonised at 20% and so the need for associated company rules in calculating corporation tax (CTA 2010 s 25) will disappear. However, we will need to wait for draft legislation (possibly on 10 December 2013) to see:

the detail of the proposed 51% test; and

  • whether this change is extended to other uses of the defined term ‘associated company’, such as in the close company (CTA 2010 s 449) or intangible fixed asset de-grouping (CTA 2009 s 788) rules (which already use different variations on the definition of an associated company).

Close company loans to participators

The government has confirmed that, following consultation earlier this year (which closed on 2 October 2013), no immediate changes will be made to the rules on close company loans to participators (Autumn Statement 2013, para 2.128).

CFCs: profit shifting through loan relationships

TIOPA 2010 Part 9A Chapter 9 provides an elective regime to exempt (or partially exempt) certain non-trade finance profits of CFCs from the CFC charge. The aim of this regime is to enable multinational groups to have a non-UK finance company making intra-group loans to other non-UK companies, without incurring a significant UK tax charge.

The government has announced two amendments to these rules to ‘ensure the CFC rules operate as intended and continue to protect the UK’s corporation tax base’.

The first change introduces an additional exclusion from the definition of a qualifying loan relationship (QLR) by reference to which a CFC’s exempt non-trade finance profits are calculated. The new rule excludes creditor relationships of the CFC (ie where the CFC has lent money) from being a QLR if:

  • that loan relationship is connected, directly or indirectly, to an arrangement; and
  • the arrangement is:
    • made directly or indirectly in connection with a creditor relationship of a UK connected company (ie a UK resident company that is connected to the CFC); and
    • the main purpose (or one of the main purposes) of the arrangement is to secure a decrease in loan relationship or derivative contract credits (or an increase in such debits) for the UK connected company, when compared with what they would have been had the arrangement not been made.

The explanatory notes (para 10) give an example that shows the amendment is intended to target groups that attempt to shift existing UK loan relationships profits out of the UK into CFCs in order to take advantage of the 75% exemption.

This change comes into effect for arrangements entered into from 5 December 2013, ie it does not capture the profits arising on any pre-existing arrangements.

The second change makes a small amendment to the last of the exclusions from the definition of QLRs. The exclusion relates to loans from CFCs that are ultimately funded from the UK. Under the previous rules, a loan had to be used ‘wholly or mainly’ to pay off a loan from a third party. For accounting periods beginning on or after 5 December 2013, the loan need only be used ‘to any extent (other than a negligible one)’ for paying off a loan from a third party. There are transitional rules to deal with the accounting periods of CFCs that straddle the 5 December 2013.

This is a surprise announcement and it is not clear what the source of the government’s concern is here. However, it is unlikely to be welcomed by multinationals and their advisers, since further changes to the CFC regime in its first year of operation introduce uncertainty.


Finance Bill 2014 will include measures implementing the proposals in HMRC’s consultation document Partnerships: a review of two aspects of the tax rules, published on 20 May 2013 (Autumn Statement 2013, para 2.124).

The ‘two aspects’ of the partnership rules were:

  • the use of limited liability partnerships (LLPs) to disguise employment relationships; and
  • the tax-motivated allocation, by partnerships with a mixture of individual and corporate partners, of profits (or losses) to partners paying tax at a lower (or higher) rate.

The consultation document stated that the changes would take effect from 6 April 2014. The Autumn Statement 2013 has announced that some of the measures will have effect immediately (from 5 December 2013) ‘to protect against risks to tax revenue’. However, the draft legislation published as part of this announcement has the effect that any partnership accounting period that straddles 6 April 2014 will be treated as two periods, with the new rules only applying in the period after 6 April. The need for a 5 December commencement date may be to do with the mechanics of taxing individuals on the profits of a partnership with an accounting period that does not coincide with the income tax year.

The measures taking immediate effect concern tax-motivated profit allocations. A typical scenario would involve a partnership with individual members, where the individuals set up a company which becomes a member of the partnership. In a profitable year, the partners could allocate more profits to the company in order to take advantage of the lower rate of corporation tax as compared to income tax. The partners would retain their economic interest in the profits through their ownership of the company; they could, for instance, withdraw the profits as dividends in a later, less profitable year.

Under the new provisions, in this situation the individual partners’ profits would, for tax purposes, be increased to reflect the profit they have foregone.

As is so often the case, the devil is in the detail. In order to identify the profit that should be reallocated to the individual partners, the draft legislation requires an assessment of what would be an appropriate return for any capital invested, or services rendered, by the corporate partner. This may be problematic to quantify, and there is a risk that the measures will go too far.

Draft legislation has also been published to implement the complementary measures countering arrangements which seek to allocate losses (as opposed to profits) to partners paying a higher (as opposed to lower) rate of tax. These have effect from 6 April 2014.

Corporation tax: amending loss relief provisions

The government has announced that it will be including legislation in Finance Bill 2013 which will amend the current corporation tax provisions that restrict relief where there is a change in the ownership of a company (CTA 2010 Part 14). Although details of the proposed amendments have not been provided, they are expected to ease the application of the relevant restrictions (Autumn Statement 2013, para 2.85).

Change of ownership is defined as, broadly, more than half of the company’s ordinary share capital changing hands. Currently, the rules ignore any change of ownership of a company that remains, broadly speaking, in the same corporate group (CTA 2010 s 724). The first proposal appears to extend this rule to allow a holding company to be inserted on top of a group of companies, although there is no reference to the specific part of the legislation that is targeted.

The second proposal relates to restrictions on relief where there has been a change of ownership of a company with investment business, followed by a significant increase in the amount of the company’s capital (CTA 2010 s 679). Currently, there is a significant increase in the capital of a company if, broadly, the capital has either increased by £1m or doubled since the change of ownership (CTA 2010 s 688(2)). Once amended, the government proposes that corporation tax relief will only be restricted where the amount of capital after the change in ownership exceeds that before the change by both £1m and 25%. It is not clear whether the alternative test (ie where capital has doubled) will remain.

Abolition of stamp taxes on transfers of shares in UK exchange traded funds

The chancellor stated that, with effect from April 2014, neither stamp duty nor SDRT would apply to a transfer of shares in UK domiciled exchange traded funds (Autumn Statement 2013, para 2.150). This announcement follows the popular announcement made at Budget 2013 to abolish stamp taxes on transfers of shares listed on growth markets, such as AIM.

OECD: base erosion and profit shifting (BEPS)

The government has reiterated its commitment to work with other countries on the action points identified in the OECD’s Action plan on base erosion and profit shifting (published by the OECD in July 2013 and endorsed by the G20 in September) (Autumn Statement 2013, para 1.300).

No specific announcement has been made about how the UK will implement the action plan. However, the OECD’s work in this area forms the context for the UK’s recent activity in the field of tax transparency (including the automatic tax information sharing agreements described in the previous section).

Employment taxes

Employment intermediaries

The government proposes to amend existing legislation to prevent ‘contrived contracts’, involving employment intermediaries that disguise employment as self-employment, being used to avoid income tax and NIC (Autumn Statement 2013, paras 1.306 and 2.129). Provisions will be included in Finance Bill 2014, to take effect from April 2014, presumably amending the intermediaries legislation relating to personal service companies (commonly known as IR35) (ITEPA 2003 ss 48–61) and possibly also the legislation relating to managed service companies (ITEPA 2003 ss 61A–61J).

This proposal follows the formation, on 12 November 2013, of a House of Lords Select Committee seeking evidence on the use of personal service companies, and the income tax and NIC implications, as well as wider issues for workers and their clients, and considering whether the intermediaries legislation should be reformed. The Committee aims to finalise its report to the House in March 2014.

Dual employment contracts

Provisions will be included in Finance Bill 2014 to take effect from April 2014 preventing ‘high-earning non-domiciled employees’ from avoiding tax by artificially splitting the duties of a single employment to shift some of their employment income offshore and therefore outside the scope of UK tax (Autumn Statement 2013, paras 1.303 and 2.126).

Currently, non-UK domiciled employees who work partly in the UK and partly overseas can enter into separate employment contracts with a view to claiming the remittance basis (and reducing their UK income tax liability) in respect of earnings from one such employment, the duties of which are performed wholly overseas for a foreign employer (ITEPA 2003 s 22).

There is no further detail at present on the proposed legislation, except that UK tax will be charged on the full employment income where a comparable level of tax is not payable overseas on the overseas contract (Autumn Statement 2013, para 2.126). It is hoped that these new rules will not impinge on overseas workday relief, now available (under ITEPA 2003 ss 26–26A) in respect of duties performed overseas by non-UK domiciled employees who meet the three-year non-residence requirement.


Following the announcement in Budget 2013 of the annual £2,000 employers’ NIC allowance from April 2014, the Autumn Statement 2013 contains three further announcements on NIC:

  • the abolition of employers’ NIC in relation to existing and new employed earners under the age of 21 from April 2015, except for those paying higher (or additional) rate income tax (ie those earning more than the upper earnings limit of £42,285 per year) in relation to whom employers’ NIC will arise as normal. Legislation will be included in the NIC Bill currently before parliament (Autumn Statement 2013, paras 1.195 and 2.48);
  • the introduction, from October 2015, of new class 3A voluntary NIC to enable pensioners who reach state pension age before 6 April 2016 to top up their additional pension records (Autumn Statement 2013, para 2.56); and
  • the government confirmed that a summary of responses and details of next steps will be published in due course following the consultation (which closed on 9 October 2013) on simplifying NIC processes for the self-employed and collecting class 2 NIC alongside class 4 NIC and income tax through self-assessment (Autumn Statement 2013, para 2.115).

Indirect employee ownership

Following Budget 2013, the Autumn Statement 2013 (Autumn Statement 2013, para 2.60) confirms that Finance Bill 2014 will introduce three new tax reliefs to encourage and promote indirect employee ownership:

  • from April 2014, disposals of shares that result in a controlling interest in a company being held by an employee ownership trust (such as an employee benefit trust) will be relieved from CGT;
  • the transfer of shares and other assets to employee ownership trusts will be exempt from inheritance tax provided that certain conditions are met; and
  • from October 2014, an annual cap of up to £3,600 worth of bonus payments will be exempt from income tax and NIC if made to employees of indirectly employee owned companies which are owned by an employee ownership trust.


The annual limits for HMRC approved share incentive plans (SIPs) will increase (for the first time in over 10 years) from April 2014 to:

  • £3,600 (from £3,000) for free shares (shares awarded to participants without payment); and
  • £1,800 (from £1,500) for partnership shares (shares acquired on behalf of employees out of sums deducted from their salary).

In addition, the amount that an employee can contribute to an HMRC approved save as you earn (SAYE) scheme will double from April 2014 to £500. (Autumn Statement 2013, para 2.61)

Office of Tax Simplification review of employee benefits and expenses and employee share schemes

Following the implementation of four of the ‘quick wins’ identified by the Office of Tax Simplification (OTS) in its Interim report on employee benefits (8 August 2013), the government has committed to deliver an additional nine ‘quick wins’ in January 2014 and consider a further 10 by the end of this parliament. The OTS has produced a list prioritising the 43 ‘quick wins’.

As anticipated, the government has confirmed its intention to enact ‘a package’ of simplifications proposed by the OTS in its Review of unapproved share schemes. As yet, no details have been announced as to which specific OTS proposals will form part of this ‘package’, but we understand it will consist of five recommendations. The changes will take effect during 2014. (Autumn Statement 2013, paras 2.111, 2.112).

Incentivised investment

Social investment tax relief

Following introduction in Budget 2013 and a consultation on social investment tax relief in June to September 2013, the government has announced that it will introduce a new tax relief for equity and certain debt investments in charities, community interest companies and community benefit societies, with the aim of encouraging individuals to invest in such social organisations. Following consultation, investment in social impact bonds issued by limited companies will also be eligible for the relief.

The government plans to publish a road map for social investment in January 2014, setting out its next steps in relation to social investment. However, it is intended that provisions implementing the relief will be included in Finance Bill 2014 and the relief will be available with effect from April 2014 (Autumn Statement 2013, paras 1.173—1.175 and 2.51).

Venture capital trusts (VCTs)

Following the consultation on VCT share buybacks (which closed on 26 September 2013), the government confirms its intention in the Autumn Statement 2013 that, from April 2014, reinvestment in a VCT conditionally linked to a share buyback, or made within six months of a disposal of shares in the same VCT, will not qualify for new tax relief (Autumn Statement 2013, para 2.52).

Implementing provisions will be included in Finance Bill 2014 (amending the existing rules in ITA 2007 Part 6).

Additionally, the government proposes (Autumn Statement 2013, para 2.52):

  • to consult on further changes to address the use of converted share premium accounts to return capital to investors, where that return does not reflect profits on the VCT’s investment; and
  • to relax the existing rules to permit investors to subscribe for VCT shares via nominees to facilitate the use of VCTs by different types of retail investors.

Income tax relief for qualifying loan interest

Legislation will be included in Finance Bill 2014 which will extend the availability of income tax relief for interest payments on loans acquired to invest in close companies and employee controlled companies. Currently, relief is only available where the investment is in a UK resident company. From April 2014, however, the relief will be extended to apply to companies resident throughout the European Economic Area (EEA) (Autumn Statement 2013, para 2.50).

Property taxes

Real estate investment trusts (REITs)

Following a series of three consultations that finally concluded on 14 June 2013, the government has confirmed that REITs will be included within the definition of ‘institutional investor’ (for the purposes of the REIT regime contained in CTA 2010 Part 12), with effect from 1 April 2014 (Autumn Statement 2013, para 2.109).

The change, likely to be widely welcomed by existing REITs and property companies that may be considering converting into a REIT, will allow a REIT to invest in another REIT in a tax efficient way; in essence, without this change, a REIT investing in another REIT would be subject to tax on the property income distribution (PID) it receives. Although this means that the investing REIT does not necessarily have to distribute the income received as its own PID, the tax transparency of the structure is lost.

It is hoped the amendment announced today will enhance the UK’s REIT regime (by avoiding tax ‘sticking’ in a REIT fund vehicle), promote investment diversification and encourage a greater number of property companies to consider conversion into a REIT.

SDLT charities relief and joint purchasers

Relief from SDLT is available on UK property acquisitions where the purchaser is a charity, subject to the satisfaction of various conditions. The Court of Appeal recently confirmed in Pollen Estate Trustee Company [2013] EWCA Civ 753 that where there is a joint property purchase and one (or more) of the joint buyers is a charity, SDLT is not payable on the portion of the purchase attributable to the charity (or charities). The Court of Appeal held that the SDLT legislation should be purposively interpreted, so that the correct construction of the FA 2003 Sch 8 para 1 is that a land transaction is exempt from charge ‘to the extent that’ the purchaser is a charity.

Following this decision, the Autumn Statement 2013 confirms that the SDLT legislation will be amended to reflect this decision, with the effect that, where a charity purchases a property jointly with a non-charity, the charity will be able to claim relief from SDLT on its proportion of a property purchase. The amendments to the SDLT legislation will be included in Finance Bill 2014 (Autumn Statement 2013, para 2.69).

Business premises renovation allowance (BPRA)

Following a technical note on BPRA published on 18 July 2013, the government will include amendments in Finance Bill 2014 to simplify the scheme, make it more certain in its application and reduce the risk of the scheme being used in tax planning structures.

The BPRA gives investors tax relief for capital costs involved in regenerating buildings in designated deprived or disadvantaged areas for business use. It provides 100% allowances on the capital costs of renovation. The technical note outlined four main areas of concern for HMRC in how BPRA was being used in practice following DOTAS disclosures.

To address these concerns, the technical note included proposals for both specific pieces of legislation to clarify the law and close perceived loopholes and also a targeted anti-avoidance rule. However, we will need to see what approach is taken in the draft Finance Bill to achieve the government’s goals in modifying this scheme (Autumn Statement 2013, para 2.117).

Business rates

The government showed its support for high street businesses facing challenges as a result of changing customer preferences, by announcing a series of measures in relation to business rates as follows:

  • indexation of business rates based on RPI increases will be capped at 2% for one year;
  • the introduction of a discount of £1,000 for retail and food and drink premises with a rateable value of up to £50,000 for two years up to the state aid limits;
  • the introduction of a 50% relief for 18 months up to the state aid limits for businesses moving into retail premises that have been empty for a year. The relief will be available when businesses move into such premises between 1 April 2014 and 31 March 2016;
  • the small business rate relief (SBRR) will be doubled for a further year;
  • the SBRR rules will be changed to allow businesses claiming SBRR to take on an additional property and continue to claim SBRR on the first property for one year; and
  • businesses will be able to pay business rates over 12 months rather than 10 months.

These measures will apply from 1 April 2014 unless otherwise indicated (Autumn Statement 2013, paras 1.162–1.165 and 2.101–2.106).

It was also confirmed that the government will consult on reforms to the business rates appeals process and is aiming to clear the backlog of appeals concerning business rates before July 2015. The government has today published the consultation Checking and challenging your rateable value, which sets out the government’s proposals in relation to improving transparency in the business rates valuation and formal challenge system; the consultation closes on 3 March 2014. In respect of longer-term reform of business rates, the government will publish a discussion paper in spring 2014 setting out different options to reform business rates administration (Autumn Statement 2013, paras 2.107—2.2.108).

Tax avoidance and evasion

Code of practice on taxation for banks

The code of practice on taxation for banks and buildings societies was introduced in 2009. Although it is voluntary (in that it is up to the banks whether they commit to complying with it), its aim is to get banks to follow not just the letter of the law, but also the spirit of tax law. Draft legislation (published on 5 December 2013) to be included in Finance Bill 2014:

  • requires HMRC to publish an annual report listing those banks that have unconditionally adopted the code, those that have not adopted it and those that HMRC considers to have breached the code despite having adopted it. This list will put pressure on banks that have adopted the code to comply with it, as well as on those that have not adopted it to do so;
  • requires procedural safeguards to be followed prior to naming a bank as non-compliant in an annual report on the code. These procedural safeguards include:
    • requiring HMRC to publish and follow a protocol, called the governance protocol, in operating the code and listing a bank as non-compliant in an annual report — the protocol, among other things, makes it clear that any transaction in respect of which a counteraction notice has been given under the GAAR, and in respect of which all or a majority of the members of a GAAR advisory sub-panel have issued an opinion or opinions that the arrangements are not a reasonable course of action, is considered to constitute a breach of the code;
    • obtaining a report from a reviewer who is independent of HMRC (an ‘independent reviewer’) on whether the bank has breached the code and should be named as non-compliant before HMRC makes the final decision; and
    • where HMRC has come to a different decision to that of the independent reviewer, HMRC must: have compelling reasons for taking a different decision, such as the independent reviewer’s determination being unreasonable; set out its reasons for this and, if litigation ensues, the burden of proof is on HMRC to show that it was lawful for it to come to a different decision; and mention in the annual report that HMRC’s decision differed from that of the independent reviewer; and
  • requires HMRC to notify the bank in writing of its decision to name the bank as non-compliant and to delay publishing the report for at least 90 days after the day on which the notice is given.

(See the draft Finance Bill 2014 legislation on the banking code of practice on taxation and Autumn Statement 2013, para 2.123.)

Along with the draft legislation, the government has also published:

  • a list of those banks which have unconditionally adopted or readopted the code as at 5pm on 4 December 2013;
  • a revised governance protocol which, with effect from 5 December 2013, replaces the 26 March 2012 version of the protocol. It is this protocol that sets out the process for HMRC to follow in determining whether a participating bank:
    • has breached the code, and
    • from 2015, should be named in HMRC’s annual report; and
  • a document entitled Establishing HMRC’s view on a bank’s compliance with the code of practice on taxation for banks.

(See HMRC’s web page on the banking code of practice for the code and the 2013 consultation on strengthening the code which underlies the changes announced in the Autumn Statement 2013.)

Avoidance schemes using total return swaps

Finance Bill 2014 will include legislation to counteract the use of avoidance schemes that utilise total return swaps linked to company profits. The measures target schemes where two group companies are party to derivative arrangements (although not necessarily at the same time) and one makes payments to the other that are, in effect, a transfer of (all or part of) the profits of a company within their group. The legislation, which will apply from 5 December 2013 to schemes entered into on any date, will prevent any deduction being given for the payments (Autumn Statement 2013, para 2.116).

Double taxation relief

Two anti-avoidance measures relating to double tax relief will be included in Finance Bill 2014 (Autumn Statement 2013, para 2.119).

The first measure relates to repayments from a tax authority made to a person as part of a scheme. Under the existing legislation, the amount of relief that can be claimed (whether by way of a credit against UK tax or as a deduction from foreign income assessable to UK tax) for a payment of foreign tax is reduced where a payment in respect of that foreign tax is made by a tax authority to either the claimant or a connected person (TIOPA 2010 ss 34 and 112). This will be extended to include where a payment is made to another (unconnected) person as a consequence of a scheme that has been entered into. This change is in response to attempts to circumvent the existing legislation by entering into schemes that result in the relevant payment being made to an unconnected person. The new legislation will have effect in respect of payments made by the foreign tax authority on or after 5 December 2013.

The second measure relates to the cap on the amount of relief that can be claimed against UK corporation tax for foreign tax paid in respect of non-trading credits from a loan relationship (such as foreign withholding tax on interest under a loan) or an intangible fixed asset (TIOPA 2010 s 42). The legislation in Finance Bill 2014 will clarify that the amount of relief for foreign tax on a non-trading credit from a loan relationship or intangible fixed asset is limited to the amount of UK tax on that net amount of the credit after deducting related debits. The government says this is in response to avoidance schemes that attempt to exploit mismatches between the foreign and UK tax treatment of items of income in order to effectively cross-credit the foreign tax against UK tax on other income. This measure relates to accounting periods beginning on or after 5 December 2013. Where an accounting period straddles this date, the rules will apply as if there are two accounting periods – one relating to the period before 5 December 2013 and one relating to the period on or after that date.

Loss buying

The government has made a statement about the commencement provisions for certain of the loss-buying anti-avoidance measures announced at Budget 2013 and legislated in FA 2013. The statement (Autumn Statement 2013, para 2.125) appears to relate to the commencement provisions for:

  • capital allowance buying (FA 2013 Sch 26 para 13); and
  • transfer of deductions (FA 2013 Sch 14 para 3).

Both of these were amended late in the parliamentary process of Finance Bill 2013 to exclude arrangements where there was common understanding between the parties on the principal terms of the change of ownership prior to the announcement on 20 March 2013. The statement (which does not suggest that any new changes are proposed beyond these existing transitional provisions) is linked with a fiscal impact (46 in table 2.1 of the Autumn Statement 2013) of £30m less tax revenue in 2013/14. This suggests that the change to the commencement provisions excluded a number of transactions that the government had originally calculated would be included in the additional revenue arising from the measures.

Tax avoidance schemes: disclosures, penalties and payment of disputed tax

High-risk promoters: Finance Bill 2014 will implement the government’s proposal, contained in the Raising the stakes on tax avoidance consultation document published on 12 August 2013, to amend the DOTAS (disclosure of tax avoidance schemes) rules to introduce new obligations on high-risk promoters (Autumn Statement 2013, para 2.137).

The Autumn Statement 2013 proposes that high-risk promoters will be identified according to objective criteria. The consultation document suggested that these could include whether a promoter has failed to notify a scheme via DOTAS, or whether HMRC has used an information power in relation to that promoter.

The consequences of being designated as a high-risk promoter will include:

  • a higher standard of reasonable excuse and reasonable care (when deciding whether the promoter should be subject to penalties for non-compliance with the DOTAS rules); and
  • an obligation on clients of high-risk promoters to identify themselves to HMRC.

The consultation document referred to some other potential consequences of high-risk promoter status, including increased obligations to provide information to HMRC, and being ‘named and shamed’. The Autumn Statement 2013 does not specifically refer to these measures, although they may be in the draft Finance Bill legislation published on 10 December.

Users of failed schemes (follower cases): Often, tax avoidance schemes will be implemented by a large number of taxpayers, but HMRC will take just one or two test cases to court. The government is increasingly concerned that, even when a scheme has been shown not to work because HMRC has won the case, other users of the same arrangements (follower cases) are not paying the disputed tax.

If a taxpayer has used a scheme that has failed in another party’s litigation, Finance Bill 2014 will give HMRC the following powers:

  • to require the taxpayer either to amend their tax return, or to face penalties if they pursue litigation on the same scheme and are unsuccessful (Autumn Statement 2013, para 2.138); and
  • to issue a ‘pay now’ notice requiring the taxpayer to pay the disputed tax, rather than waiting for the matter to be settled (Autumn Statement 2013, para 2.139).

The first of these measures (follower penalties) was in the Raising the stakes consultation document. The second (‘pay now’ notices) is new for the Autumn Statement 2013 and comes in the wake of the Supreme Court’s decision in Cotter [2013] UKSC 69, in which it was held that in some (currently fairly limited) circumstances HMRC is entitled to enforce payment of a tax debt, and to withhold tax relief arising from a tax avoidance scheme, while it is investigating the scheme.

The Autumn Statement 2013 indicates that the government will also consult on issuing ‘pay now’ notices in a wider range of circumstances.

Tax evasion

Offshore evasion – use of exchanged information: In recent months, the UK has entered into automatic tax information sharing agreements with most of the UK’s Crown dependencies and overseas territories (the Isle of Man, Guernsey, Jersey, the Cayman Islands, Gibraltar, Bermuda, Montserrat, the Turks and Caicos Islands and the British Virgin Islands: only Anguilla has yet to sign up).

HMRC is now addressing the question of how best to make use of the information it receives under these new agreements. It will consult, at the time of Budget 2014, on some enhanced sanctions for taxpayers who hide money offshore (Autumn Statement 2013, paras 2.132 and 2.133).

Register of company beneficial ownership: As previously announced, the UK will create a publicly accessible central registry of information on company beneficial ownership. This is intended to help combat tax evasion, money laundering and other crimes (Autumn Statement 2013, para 1.314).

Private client

Income tax rates and thresholds

Income tax rates and personal allowance
  2013/14: Tax rate 2013/14: Income bands 2014/15: Tax rate 2014/15: Income bands
Personal allowance for those whose income does not exceed £10,000*  0% £0–£9,440 0% 0-£100,000*
Basic rate** 20% Up to £32,010 20% Up to £31,865
Higher rate** 40% £32,011–£150,000 40% £31,866–£150,000
Additional rate** 50% Over £150,000 50% Over £150,000

* This table includes only the personal allowance applicable to those born on or after 6 April 1948. The personal allowance for those born between 6 April 1938 and 5 April 1948 remains unchanged at £10,500 and the personal allowance for those born before 6 April 1938 remains unchanged at £10,660.
** These figures ignore the effect of the personal allowance. The combined effect of the amount of income that is subject to the basic rate of income tax being reduced to £31,865 (from £32,010) and the higher personal allowance is that the threshold at which the higher rate of tax will start to apply will be £41,866 (up from £41,451).

Transferable income tax allowance for married couples

The Autumn Statement confirms that, from 2015/16, spouses and civil partners will be able to transfer £1,000 of their income tax personal allowance to their spouse or civil partner. Only couples where neither partner is a higher or additional rate tax payer will be eligible to take advantage of this new measure.

The effect of making this transfer is that the spouse or civil partner who has received the transfer will benefit from a reduction in their income tax liability of £200. It has been announced that the transferable amount will be increased in proportion to the personal allowance (Autumn Statement 2013, para 2.47).

CGT private residence relief

It was announced that the final period exemption under CGT private residence relief will be halved from 36 months to 18 months from April 2014 (Autumn Statement 2013, para 2.58). This provision is designed to reduce the incentive for taxpayers to engage in the practice commonly known as ‘flipping’, whereby the taxpayer purchases a property, lives in it as their main residence and then benefits from private residence relief for the last 36 months of ownership when they come to sell the property, regardless of whether they are still using it as their principal residence at the time of sale.

This announcement will come as a nasty surprise to many second-home owners, and some commentators are suggesting that affected home owners may well try to sell second homes before this measure comes into effect in April 2014.

Annual exemption

It has not been announced what the annual exempt amount for capital gains tax will be for 2014/15, so it is likely to be increased in line with the consumer price index (CPI).

Inheritance tax and trusts

There are a number of issues that the government has mentioned in the Autumn Statement and will address at a later date:

  • legislation will be introduced to simplify filing and payment dates for IHT relevant property charges. It is supposed that this will encompass electronic filing and that dates to match current personal tax filing times will be introduced, but details will be forthcoming in due course with an operational date of 2015/16 (Autumn Statement 2013, para 2.62);
  • a major change to the relevant property trust income situation will be introduced to the effect that any income from trust assets that remain undistributed after five years will be treated for all purposes as capital for the purposes of the 10 yearly charge (Autumn Statement 2013, para 2.62). It is not yet clear how the five year period will be calculated (eg from when income arises, is paid, date of trust, is it retrospective etc) but the message to practitioners is clear: distribute, do not accumulate, although the finer details of the legislation will require careful perusal;
  • as flagged up well in advance of the Statement there will be legislation to combat the pilot trust ‘threat’ from 2015 (Autumn Statement 2013, para 2.62). There will be consultations on how to split the IHT nil rate band between multiple trusts and it will be necessary to await the draft legislation before remedial action can be contemplated, but the creation of multiple trusts at this stage is perhaps a highly speculative operation and perhaps plans for unbundling those in current use will need to be considered;
  • recognising the special need of the ‘vulnerable beneficiary’, the government has, with immediate effect, extended the CGT uplift provisions that apply on the death of a vulnerable beneficiary. Therefore, trusts benefiting vulnerable beneficiaries will be able to enjoy the full CGT uplift provisions (Autumn Statement 2013, para 2.63); and
  • the government will extend the range of trusts that will qualify for special income tax, CGT and IHT treatment as well as consult on the tax treatment of trusts designed to safeguard the property of vulnerable people. There are no specific proposals as yet (Autumn Statement 2013, para 2.63).


There is a willingness on the part of the government to extend the use of gift aid, but there is also potential for abuses of the system. With that in mind, it is proposed that a working group be established to:

  • revise the gift aid declaration to make it more user friendly; and
  • to develop new promotional material to help increase the take-up of the scheme, but further consultation will take place on this and other issues (Autumn Statement 2013, para 2.65).

There has been confusion on the SDLT position where charities purchase with non-charities but this will now be clarified in legislation to enable charities to claim SDLT relief on that proportion of the purchase price supplied by the charity (Autumn Statement 2013, para 2.69).

Fairly predictably in the wake of recent high profile cases, the government will introduce legislation in FA 2014 to amend the definition of a charity for tax purposes to put beyond doubt that entities established for the purpose of tax avoidance are not entitled to claim charitable tax reliefs (Autumn Statement 2013, para 2.130). One such high profile case was that of the Cup Trust, which was registered as a charity by the Charity Commission in 2009 with a British Virgin Islands company as its sole trustee. Over the next two years, the trust generated income of £176m, claimed £46m of gift aid, but gave only £55,000 to charitable causes.


The basic state pension will rise by £2.95 per week to £113.10 per week from 6 April 2014 (Autumn Statement 2013, para 2.73). The increase in the state pension age to 68 could be brought forward to the mid-2030s from the current date of 2046 (Autumn Statement 2013, para 2.72). A new scheme will be introduced to allow pensioners to top up their additional state pension by paying a new class of voluntary national insurance contribution (Autumn Statement 2013, para 2.56).

CGT for non-residents

As widely predicted, the government has confirmed its intention to introduce CGT on future gains made by non residents disposing of UK residential property from April 2015 (Autumn Statement 2013, para 2.59). Non-residents are currently exempt from CGT on gains made on UK property. The government plans to open a consultation on how best to introduce this new CGT charge in early 2014.

The fact that the introduction of this measure is delayed until April 2015 means that it is unlikely to have an immediate effect on the housing market.

The government does not expect to raise money from this new charge until 2016/17, although it expects to receive annual revenues of about £70m by 2018/19.

It is anticipated that this charge will hit non-residents from low tax jurisdictions harder than those from higher tax jurisdictions such as Europe or the US. This is because many non-residents from higher tax jurisdictions already pay an equivalent local tax on UK residential property gains and will therefore be able to claim a refund of some or all of the new UK tax charge under the relevant double tax treaty. In contrast, a non-resident who currently pays no tax on gains realised on the sale of UK property, will really notice the new charge.

Individual savings accounts (ISAs)

New annual subscription limits: The chancellor has announced that the ISA, junior ISA and child trust fund annual subscription limits will be increased in line with the CPI. The 2014/15 ISA limit will be increased to £11,880, half of which can be saved in a cash ISA. The junior ISA and child trust fund limits will both be increased to £3,840 (Autumn Statement 2013, para 2.55).

Retail bond eligibility for stocks and shares ISAs: The government has indicated that it is exploring the possibility of increasing the number of retail bonds eligible for stocks and shares ISAs by reducing the requirement that such securities must have a remaining maturity above five years (Autumn Statement 2013, para 2.151).

Tax administration

VAT returns and electronic filing

The government will consult on amendments to the VAT regime to allow alternative options for VAT registered businesses to file VAT returns (Autumn Statement 2013, para 2.96). This follows a series of cases where taxpayers contested the requirement for various tax returns and payments of tax in the UK to be made by electronic means on the grounds that such requirement is a breach of the European Convention on Human Rights. In particular, in the test case LH Bishop Electric Company, a number of taxpayers appealed against HMRC notices requiring them to pay VAT and file VAT returns electronically. The First-tier Tribunal accepted the taxpayers’ argument that the obligation to file tax returns online was a breach of their human rights.

OTS review of tax administration

The government has asked the Office of Tax Simplification (OTS) to carry out a new review on measures to further improve the competitiveness of UK tax administration, with particular regard to the World Bank’s Doing business reports, which includes a report produced jointly with PWC called Paying taxes 2014 (Autumn Statement 2013, para 2.110). That report compares the tax systems of 189 economies worldwide, looking in particular at three measures: total tax rates; time to comply; and number of tax payments. The most recent report ranked the UK at 14 of the 189 economies (up two places from 16 the year before).

The government has published the terms of reference for this review, which is expected to cover all types of business but focus on SMEs, and to be released by summer 2014.

Publication of anonymised HMRC data

HMRC is pressing ahead with the proposal, published for consultation on 17 July 2013, to publish anonymised data (on, for instance, the amount of tax collected from certain categories of taxpayer). HMRC is currently prohibited from releasing information in this way, but considers that there may be benefits in releasing certain categories of data that do not identify individual taxpayers. This could be used, for example, for research, or for policy development across different government departments. Draft legislation will be issued for further consultation in ‘early 2014’.

The government is also considering releasing non-financial VAT registration data, and anticipates that this could be used by credit reference agencies (Autumn Statement 2013, para 2.147).

This summary was provided by Lexis®PSL Tax – the new service from LexisNexis providing tax lawyers with practical guidance and precedents. Take a free trial