The chancellor of the exchequer, Philip Hammond, delivered his first autumn statement on 23 November. It will also be his last, as he announced that Budgets will switch back to the autumn from 2017, with a Finance Bill published shortly afterwards to reach royal assent before the start of the following tax year. The spring Budget in 2017 will be the last one held during springtime. From 2018, ‘legislation day’ will move to the summer, preceded by a spring statement. Apart from this, the autumn statement held few surprises. Three measures were announced with immediate effect from 23 November:
· first-year capital allowances for electric vehicle charging points: from 23 November 2016 to the end of March 2019, the government will offer 100% first-year allowances to companies investing in charging points for electric vehicles;
· removal of tax relief linked to employee shareholder status: the tax advantages linked to shares awarded under employee shareholder status will be abolished for arrangements entered into on or after 1 December 2016 (except where an individual has received independent advice regarding entering into an employee shareholder agreement before 23 November 2016). The status itself will be closed to new arrangements at the next legislative opportunity. This is in response to evidence suggesting that the status is being used primarily for tax planning instead of supporting a more flexible workforce; and
· opting out of petroleum revenue tax: from 23 November 2016, the process for opting fields out of the PRT regime will be simplified, by allowing the responsible person for a taxable oil field to remove the oil field from the PRT regime simply by making an election, and certain reporting requirements will also be removed from PRT forms.
Other measures confirmed in relation to business taxes included:
· limiting tax deductibility of corporate interest expense: following consultation, rules to limit the tax deductions that large groups can claim for their UK interest expenses will be introduced from April 2017. These will apply where a group has net interest expenses of more than £2 million, which exceed 30% of UK taxable earnings and the group’s net interest-to-earnings ratio in the UK exceeds that of the worldwide group. The government will widen the provisions proposed to protect investment in public benefit infrastructure. Banking and insurance groups will be subject to the rules in the same way as groups in other industry sectors;
· reform of loss relief: following consultation, reforms announced at Budget 2016 to restrict the amount of profit that can be offset by carried-forward losses to 50% will be introduced from April 2017, while allowing greater flexibility over the types of profit that can be relieved by losses incurred after that date. The restriction will be subject to a £5 million allowance for each standalone company or group. The amount of profit that banks can offset with losses incurred prior to April 2015 will continue to be restricted to 25%;
· bringing non-resident companies’ UK income into the corporation tax regime: the government will consult at Budget 2017 on proposals to bring all non-resident companies receiving taxable income from the UK into the corporation tax regime, ensuring that all companies are subject to the rules which apply generally for the purposes of corporation tax, including the limitation of corporate interest expense deductibility and loss relief rules;
· substantial shareholding exemption reform: following consultation, the government will proceed with changes to simplify the rules, remove the investing requirement and provide a more comprehensive exemption for companies owned by qualifying institutional investors. The changes will take effect from April 2017;
· authorised investment funds’ dividend distributions to corporate investors: The government will publish draft secondary legislation in early 2017 to modernise the rules on the taxation of dividend distributions to corporate investors in a way which allows exempt investors, such as pension funds, to obtain credit for tax paid by the investment fund;
· museums and galleries tax relief: this new relief, which is due to be introduced from 1 April 2017, will be widened to include permanent exhibitions. The relief will be set at 25% for touring exhibitions, 20% for non-touring exhibitions, and will be capped at £500,000 of qualifying expenditure per exhibition. It will be reviewed in 2020 and will expire in April 2022 if not renewed;
· research and development tax relief: the government will review the tax environment for R&D to look at ways to build on the introduction of the ‘above the line’ R&D tax credit;
· patent box rules: legislation in Finance Bill 2017 will amend the rules to ensure, in cases where research and development is undertaken collaboratively by two or more companies under a ‘cost sharing arrangement’, that such companies are neither penalised nor able to gain an advantage under the rules. This will have effect for accounting periods commencing on or after 1 April 2017;
· tax-advantaged venture capital schemes: the government has decided not to introduce flexibility for replacement capital within the tax-advantaged venture capital schemes for the time being. Legislation in Finance Bill 2017 will:
o clarify the EIS and SEIS rules for share conversion rights, for shares issued on or after 5 December;
o provide additional flexibility for follow-on investments made by VCTs on or after 6 April 2017, to align with EIS provisions; and
o enable VCT regulations to be made in relation to certain share-for-share exchanges.
· offshore funds: the government will legislate to ensure that performance fees incurred by offshore funds, calculated by reference to any increase in the fund’s value, are not deductible against reportable income from April 2017 and instead reduce any tax payable on disposal gains of UK taxpayers. This will equalise the tax treatment between onshore and offshore funds;
· business rates: the government will double rural rate relief to 100% from 1 April 2017, to remove the inconsistency between rural rate relief and small business rate relief;
· social investment tax relief: from 6 April 2017, the amount of investment social enterprises up to 7 years old can raise through the scheme will increase to £1.5 million. Certain activities, including asset leasing and on-lending, will be excluded. Investment in nursing homes and residential care homes will be excluded initially, but the government intends to introduce an accreditation system to allow such investment to qualify for SITR in the future. The limit on full-time equivalent employees will be reduced to 250.
Other measures confirmed in relation to personal taxes included:
· personal allowance and higher rate threshold: the personal allowance will rise to £11,500 and the higher rate threshold to £45,000 in 2017/18. The government still aims to raise these to £12,500 and £50,000 respectively by the end of this Parliament;
· salary sacrifice: following consultation, the tax and employer NICs advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, cycle-to-work and ultra-low emission cars. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021;
· valuation of benefits in kind: the government will publish a consultation on employer-provided living accommodation and a call for evidence on the valuation of all other benefits in kind at Budget 2017;
· employee business expenses: the government will publish a call for evidence at Budget 2017 on the use of the income tax relief for employees’ business expenses, including those not reimbursed by their employer;
· inheritance tax reliefs: Finance Bill 2017 will extend IHT relief for donations to political parties to parties with representatives in the devolved legislatures, as well as parties that have acquired representatives through by-elections; and
· foreign pensions: tax treatment of foreign pensions will be more closely aligned with the UK’s domestic pension tax regime by bringing foreign pensions and lump sums fully into tax for UK residents. The government will also: close specialist pension schemes for those employed abroad (‘section 615’ schemes) to new saving; extend from 5 to 10 years the taxing rights over recently emigrated non-UK residents’ foreign lump sum payments from funds that have had UK tax relief; align the tax treatment of funds transferred between registered pension schemes; and update the eligibility criteria for foreign schemes to qualify as overseas pensions schemes for tax purposes.
Other measures confirmed in relation to VAT and indirect taxes included:
· VAT flat-rate scheme: the government will introduce a new 16.5% rate from 1 April 2017 for ‘limited-costs traders’; broadly, those whose VAT-inclusive expenditure on goods is less than 2% of their turnover in a period, or less than £1,000 per annum. From 1 April 2017, businesses will have to determine whether they meet the definition of a limited-cost trader, which will be included in draft secondary legislation to be published on 5 December. Anti-forestalling provisions for payments received between 23 November 2016 and 1 April 2017 have been included in an updated version of VAT notice 733; and
· insurance premium tax: The standard rate of IPT will rise to 12% from 1 June 2017.
Other measures confirmed in relation to tax administration included:
· making tax digital: the government will publish its response to the consultations in January 2017;
· tax enquiry closure rules: following consultation during 2014 and 2015, the government will now legislate to provide HMRC with a power to issue 'partial closure' notices as a means of speeding-up the tax enquiry process in large, high risk and complex tax enquiries;
· disguised remuneration schemes and self-employed taxpayers: the government will extend the scope of the rules on disguised remuneration to tackle the use of disguised remuneration avoidance schemes by the self-employed. Tax relief for an employer’s contributions to disguised remuneration schemes will also be denied unless tax and NICs are paid within a specified period;
· penalties for enablers of tax avoidance schemes: following consultation, the government will proceed with the introduction of a new penalty for enablers of tax avoidance arrangements that are later defeated by HMRC. The government will also remove the defence of having relied on non-independent advice as taking ‘reasonable care’ when considering penalties for any person or business that uses such arrangements;
· updating the VAT avoidance disclosure regime: legislation in Finance Bill 2017 will strengthen the regime effect from 1 September 2017, extending it to include all indirect taxes and making scheme promoters primarily responsible for disclosing schemes to HMRC; and
· penalty for participating in VAT fraud: following consultation, legislation in Finance Bill 2017 will introduce a new 30% fixed-rate penalty for businesses and company officers when they knew or should have known that their transactions were connected with VAT fraud.
Draft Finance Bill legislation will be published on 5 December.
The chancellor of the exchequer, Philip Hammond, delivered his first autumn statement on 23 November. It will also be his last, as he announced that Budgets will switch back to the autumn from 2017, with a Finance Bill published shortly afterwards to reach royal assent before the start of the following tax year. The spring Budget in 2017 will be the last one held during springtime. From 2018, ‘legislation day’ will move to the summer, preceded by a spring statement. Apart from this, the autumn statement held few surprises. Three measures were announced with immediate effect from 23 November:
· first-year capital allowances for electric vehicle charging points: from 23 November 2016 to the end of March 2019, the government will offer 100% first-year allowances to companies investing in charging points for electric vehicles;
· removal of tax relief linked to employee shareholder status: the tax advantages linked to shares awarded under employee shareholder status will be abolished for arrangements entered into on or after 1 December 2016 (except where an individual has received independent advice regarding entering into an employee shareholder agreement before 23 November 2016). The status itself will be closed to new arrangements at the next legislative opportunity. This is in response to evidence suggesting that the status is being used primarily for tax planning instead of supporting a more flexible workforce; and
· opting out of petroleum revenue tax: from 23 November 2016, the process for opting fields out of the PRT regime will be simplified, by allowing the responsible person for a taxable oil field to remove the oil field from the PRT regime simply by making an election, and certain reporting requirements will also be removed from PRT forms.
Other measures confirmed in relation to business taxes included:
· limiting tax deductibility of corporate interest expense: following consultation, rules to limit the tax deductions that large groups can claim for their UK interest expenses will be introduced from April 2017. These will apply where a group has net interest expenses of more than £2 million, which exceed 30% of UK taxable earnings and the group’s net interest-to-earnings ratio in the UK exceeds that of the worldwide group. The government will widen the provisions proposed to protect investment in public benefit infrastructure. Banking and insurance groups will be subject to the rules in the same way as groups in other industry sectors;
· reform of loss relief: following consultation, reforms announced at Budget 2016 to restrict the amount of profit that can be offset by carried-forward losses to 50% will be introduced from April 2017, while allowing greater flexibility over the types of profit that can be relieved by losses incurred after that date. The restriction will be subject to a £5 million allowance for each standalone company or group. The amount of profit that banks can offset with losses incurred prior to April 2015 will continue to be restricted to 25%;
· bringing non-resident companies’ UK income into the corporation tax regime: the government will consult at Budget 2017 on proposals to bring all non-resident companies receiving taxable income from the UK into the corporation tax regime, ensuring that all companies are subject to the rules which apply generally for the purposes of corporation tax, including the limitation of corporate interest expense deductibility and loss relief rules;
· substantial shareholding exemption reform: following consultation, the government will proceed with changes to simplify the rules, remove the investing requirement and provide a more comprehensive exemption for companies owned by qualifying institutional investors. The changes will take effect from April 2017;
· authorised investment funds’ dividend distributions to corporate investors: The government will publish draft secondary legislation in early 2017 to modernise the rules on the taxation of dividend distributions to corporate investors in a way which allows exempt investors, such as pension funds, to obtain credit for tax paid by the investment fund;
· museums and galleries tax relief: this new relief, which is due to be introduced from 1 April 2017, will be widened to include permanent exhibitions. The relief will be set at 25% for touring exhibitions, 20% for non-touring exhibitions, and will be capped at £500,000 of qualifying expenditure per exhibition. It will be reviewed in 2020 and will expire in April 2022 if not renewed;
· research and development tax relief: the government will review the tax environment for R&D to look at ways to build on the introduction of the ‘above the line’ R&D tax credit;
· patent box rules: legislation in Finance Bill 2017 will amend the rules to ensure, in cases where research and development is undertaken collaboratively by two or more companies under a ‘cost sharing arrangement’, that such companies are neither penalised nor able to gain an advantage under the rules. This will have effect for accounting periods commencing on or after 1 April 2017;
· tax-advantaged venture capital schemes: the government has decided not to introduce flexibility for replacement capital within the tax-advantaged venture capital schemes for the time being. Legislation in Finance Bill 2017 will:
o clarify the EIS and SEIS rules for share conversion rights, for shares issued on or after 5 December;
o provide additional flexibility for follow-on investments made by VCTs on or after 6 April 2017, to align with EIS provisions; and
o enable VCT regulations to be made in relation to certain share-for-share exchanges.
· offshore funds: the government will legislate to ensure that performance fees incurred by offshore funds, calculated by reference to any increase in the fund’s value, are not deductible against reportable income from April 2017 and instead reduce any tax payable on disposal gains of UK taxpayers. This will equalise the tax treatment between onshore and offshore funds;
· business rates: the government will double rural rate relief to 100% from 1 April 2017, to remove the inconsistency between rural rate relief and small business rate relief;
· social investment tax relief: from 6 April 2017, the amount of investment social enterprises up to 7 years old can raise through the scheme will increase to £1.5 million. Certain activities, including asset leasing and on-lending, will be excluded. Investment in nursing homes and residential care homes will be excluded initially, but the government intends to introduce an accreditation system to allow such investment to qualify for SITR in the future. The limit on full-time equivalent employees will be reduced to 250.
Other measures confirmed in relation to personal taxes included:
· personal allowance and higher rate threshold: the personal allowance will rise to £11,500 and the higher rate threshold to £45,000 in 2017/18. The government still aims to raise these to £12,500 and £50,000 respectively by the end of this Parliament;
· salary sacrifice: following consultation, the tax and employer NICs advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, cycle-to-work and ultra-low emission cars. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021;
· valuation of benefits in kind: the government will publish a consultation on employer-provided living accommodation and a call for evidence on the valuation of all other benefits in kind at Budget 2017;
· employee business expenses: the government will publish a call for evidence at Budget 2017 on the use of the income tax relief for employees’ business expenses, including those not reimbursed by their employer;
· inheritance tax reliefs: Finance Bill 2017 will extend IHT relief for donations to political parties to parties with representatives in the devolved legislatures, as well as parties that have acquired representatives through by-elections; and
· foreign pensions: tax treatment of foreign pensions will be more closely aligned with the UK’s domestic pension tax regime by bringing foreign pensions and lump sums fully into tax for UK residents. The government will also: close specialist pension schemes for those employed abroad (‘section 615’ schemes) to new saving; extend from 5 to 10 years the taxing rights over recently emigrated non-UK residents’ foreign lump sum payments from funds that have had UK tax relief; align the tax treatment of funds transferred between registered pension schemes; and update the eligibility criteria for foreign schemes to qualify as overseas pensions schemes for tax purposes.
Other measures confirmed in relation to VAT and indirect taxes included:
· VAT flat-rate scheme: the government will introduce a new 16.5% rate from 1 April 2017 for ‘limited-costs traders’; broadly, those whose VAT-inclusive expenditure on goods is less than 2% of their turnover in a period, or less than £1,000 per annum. From 1 April 2017, businesses will have to determine whether they meet the definition of a limited-cost trader, which will be included in draft secondary legislation to be published on 5 December. Anti-forestalling provisions for payments received between 23 November 2016 and 1 April 2017 have been included in an updated version of VAT notice 733; and
· insurance premium tax: The standard rate of IPT will rise to 12% from 1 June 2017.
Other measures confirmed in relation to tax administration included:
· making tax digital: the government will publish its response to the consultations in January 2017;
· tax enquiry closure rules: following consultation during 2014 and 2015, the government will now legislate to provide HMRC with a power to issue 'partial closure' notices as a means of speeding-up the tax enquiry process in large, high risk and complex tax enquiries;
· disguised remuneration schemes and self-employed taxpayers: the government will extend the scope of the rules on disguised remuneration to tackle the use of disguised remuneration avoidance schemes by the self-employed. Tax relief for an employer’s contributions to disguised remuneration schemes will also be denied unless tax and NICs are paid within a specified period;
· penalties for enablers of tax avoidance schemes: following consultation, the government will proceed with the introduction of a new penalty for enablers of tax avoidance arrangements that are later defeated by HMRC. The government will also remove the defence of having relied on non-independent advice as taking ‘reasonable care’ when considering penalties for any person or business that uses such arrangements;
· updating the VAT avoidance disclosure regime: legislation in Finance Bill 2017 will strengthen the regime effect from 1 September 2017, extending it to include all indirect taxes and making scheme promoters primarily responsible for disclosing schemes to HMRC; and
· penalty for participating in VAT fraud: following consultation, legislation in Finance Bill 2017 will introduce a new 30% fixed-rate penalty for businesses and company officers when they knew or should have known that their transactions were connected with VAT fraud.
Draft Finance Bill legislation will be published on 5 December.
