Bill Dodwell, head of tax policy at Deloitte, considers what tax measures the Chancellor is expected to focus upon in the Autumn Statement this week (5th December).
Deloitte previews Chancellor's Autumn Statement 2013
Bill Dodwell comments: “The personal tax allowance for 2014/15 was announced in the Spring Budget to be £10,000. The higher rate thresholds for 2014/15 and 2015/16 will now increase at 1%, rather than CPI. This is planned to bring in an extra £3.8bn over the next four years and will bring many more into the higher rate band.
“Deloitte predicts that 20% of taxpayers, about 5.5 million workers will be charged at least 40% within five years.”*
Overall the Autumn Statement is primarily an economic event. The Office of Budget Responsibility will issue its latest Economic and Fiscal Outlook, which is expected to reflect the significant improvement in economic data since the Budget.
What could the Chancellor announce?
Code of Practice for banks
In 2009, a Code of Practice for Banks was introduced, where banks committed not to undertake tax planning outside their commercial activities, or where it might be viewed as contrary to the intention of Parliament. 262 banks in the UK signed up to the Code, which had reduced requirements for smaller banks. HM Revenue & Customs consulted over the summer on strengthening the Code. The main changes will be more regular reporting from HMRC on banks’ compliance with the Code, a review process with an independent reviewer where HMRC consider that a bank might have breached the Code and the possibility that banks could be named for breaches.
The Chancellor is expected to give details of the revised Code and announce which banks have signed up to the new version.
Reform of the international tax system
The need for reform to the international tax system continues to attract considerable interest. The OECD published its 15 point Action Plan in July 2013, closely followed by the first two papers. Five actions are due to be completed by September 2014 for approval by the G20 at their meeting in Cairns, Australia.
The UK has devoted considerable resources in supporting the OECD’s work. The Chancellor may well discuss progress but we do not expect that he will announce any unilateral measures, instead waiting on the outcome of the OECD’s work.
Transferable personal allowance
The intention to introduce the ability to transfer up to £1,000 of the personal allowance from one spouse to another was announced in September to come into force in 2015/16, and we expect more detail on this in the Autumn Statement. It will benefit married couples and civil partners where neither is a higher rate taxpayer and one has a low level of income resulting in unused personal allowance. It will provide a saving of up to £200 for those affected; Government figures indicate that up to 4m couples will benefit.
Capital gains tax for non-residents
There have been widely reported rumours that the Treasury is considering imposing a capital gains tax charge on non-residents who dispose of UK residential property. Whilst the Treasury has described the story as 'speculation' it is possible that this will be included in the Autumn Statement. However, there would be a considerable number of technical issues with introducing such a charge and we would expect a period of consultation before any changes were introduced. These could include ‘rebasing’ (only charging tax on gains after introduction, by treating the property as acquired at market value on the date the law changes) and reporting details of sales. If the change was introduced it would be in line with many other countries which already charge tax on the disposal of their real estate by non-residents. Any changes to the UK tax rules could affect sales prices whilst the market adapts to changed circumstances. If changes are to be introduced, the availability of principal private residence relief (which is a complete exemption to the charge for persons selling their main residence) will need to be carefully considered.
Taxation of partnerships
There are two key points under consideration, which will have wide-ranging implications for some partnerships. Firstly the Government intends to introduce legislation to subject to employment tax individuals who are, in reality, employees. In addition, a number of proposals were made regarding profit and loss allocation between partners, in particular where corporate partners are involved. The measures were costed as raising £365 million in 2015-16. Changes in legislation are expected to take effect from 6 April 2014, and those involved will be keen to see the final proposals well before that date.
Personal Tax Rates and allowances
National Insurance thresholds for 2014/15 have not yet been announced, and these are likely to be included in the Autumn Statement. The Government has already announced that the lower ‘contracted-out’ rates will be withdrawn from 6 April 2016, when the new state pension is introduced.
It has already been announced that most other allowances and benefits will be uprated at 1% for the two years from 2014/15, and that the inheritance tax nil rate band will remain at £325,000 for three years from 2015/16.
There have been numerous consultations over the summer period and the outcomes are likely to be announced with the Autumn Statement. In some cases we may expect draft legislation to be issued on 10 December. Some relevant consultations are set out below.
Offshore employment intermediaries
In recent years there has been a growth in the use of offshore employers to employ UK workers for UK based companies. Whilst many such arrangements are commercially motivated, some businesses have used these structures to avoid paying employment taxes for their UK-based workers. HMRC’s original proposals, which involved the offshore employer accounting for PAYE and NIC, attracted considerable criticism, and they were substantially revised in October. The revised proposal will amend and strengthen existing legislation to make it clearer and more effective, rather than creating new legislation, and we expect the legislative changes to be announced at the Autumn Statement or shortly afterwards.
Taxation of corporate debt and derivatives
It is widely acknowledged that the taxation of corporate debt and of derivatives is complex, and that tax planning in this area has been an ongoing concern for HMRC. Changes to simplify and align the two separate regimes, whilst toughening targeted anti-avoidance measures, is expected, although it seems likely that more measures will be deferred until 2015.
The Office of Tax Simplification has been carrying out reviews onto various areas of taxation. In particular employee benefits and expenses. An interim report was published in August 2013, followed by a Progress report on ‘Quick wins’ where the Office consider that Simplification could be achieved relatively easily. There may be action announced on this in the Autumn Statement.
Trust tax regime
A consultation into the inheritance tax (IHT) regime for trusts took place over the summer months. Most trusts pay IHT at a maximum rate of 6% every 10 years and a further charge when assets leave the trust. However the calculation of the actual rate is complex and the consultation was around whether this could be simplified. We expect that the current proposals will hit people who have set up multiple trusts in the past by grouping them together for the nil-rate band.
The reduction in the lifetime allowance (the maximum amount that someone can save in a pension) from £1.5million to £1.25 million will take effect from 6 April 2014. This follows a drop from £1.8million in 2012.
Two new lifetime allowance protections are being introduced, which will be effective from 2014/15. The rules for claiming Fixed Protection 2014 are already available. This must be claimed by 5 April 2014, and will allow people to retain the current £1.5m limit after that date, but no further pension savings can be made.
Individual Protection will also be available, but the detail of this is still under consultation. It is expected to have a deadline of 5 April 2017, and will allow people to retain an allowance based on the level of their pension savings at 5 April 2014, but to make further contributions if need be. This may be more beneficial than Fixed Protection in some cases, and decisions between the two protections will need to be made by 5 April 2014.
The final legislation is expected shortly and this will enable people to take the necessary advice to make a decision.
Employee owned companies
The 2013 Budget mentioned a consultation process to encourage employee ownership. This consultation was carried out over the summer and the results are expected to be included in the Finance Act 2014 to take effect from 2014/15.
- A capital gains tax relief which would apply when the controlling share of a business is sold into an indirect employee ownership structure; and
- An income tax and national insurance contributions (NICs) exemption which would allow indirectly employee owned companies to pay their employees a certain amount per annum, free of income tax and NICs. There would also be an employer NICs exemption for the company.
The package is expected to cost £50 million, and it remains to be seen whether the proposals will be amended and exactly how they will be targeted.
Child trust funds
There has also been a consultation on allowing Child Trust Funds to be transferred to Junior ISAs. Child trust funds were available from 2002 to 2011, and could be invested (along with parental contributions) in specific funds. An announcement following the consultation may be made in the Autumn Statement.
Social investment tax relief
Over the Summer HM Treasury consulted about creating a tax incentive to encourage social enterprises. However, we have concerns that the proposals – a tax relief based on the existing (and complex) Enterprise Incentive Scheme – would not achieve their objective. We favour a much simpler scheme similar to Gift Aid, based on outright donations to (rather than investments in) approved social enterprises.
Notes to editors:
*Higher-rate tax will be payable at 40% on earnings above £41,500 next year, and 45% above £150,000.
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