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Rocky Road – The Chancellor’s Autumn Statement 2012

6 December 2012 No Comment

The Chancellor said that the British economy was on a┬árocky road┬átowards health. No one is ever going to complain about having rocky road in their lunchbox. It’s excellent for a quick, snatched burst of energy at any time. I’m pretty sure that’s not exactly how George might have intended us to interpret his statement but what I do think is that much of this Autumn statement was intended as┬ádistraction therapy to give at least certain sectors a quick, snatched burst of positivity.

Whilst it’s not really my role to comment on the economic information presented so carefully yesterday, it’s clear that George may have adopted the old accountants definition, “what number do you want it to be?” when dealing with the many variables such as the timing of 4G licence sales income, Royal Mail pension scheme treatments and the old “whose money is that?” game from the Asset Purchase Facility. Luckily for him, it is so┬áfiendishly┬ácomplicated that many commentators still can’t properly agree what growth, borrowing, deficit and other key numbers might actually be. I’m therefore not even going to try, I’ll only make an Ed Ball’s of it!


Mini-Budget not Autumn Statement?

This was really a mini-Budget which produced some good news and surprises for business and some expected bad news for personal taxation.


Personal tax

  • From 6 April 2014, the annual allowance for pension contributions will reduce from ┬ú50,000 to ┬ú40,000. This is an excellent reason for individuals to maximise pension contributions before 5 April 2013 where income tax relief at 50% is available.
  • Also from 6 April 2014, the lifetime allowance for pension savings will be reduced from ┬ú1.5million to ┬ú1.25 million.Individuals with pension savings near ┬ú1.25m will face a difficult choice about how to manage excesses (which could be taxed at 55%) and which of the new forms of protection to elect for. Another form of fixed pension protection is apparently on its way and also mooted is personalised protection. Since 2006, five different forms of pension protection have been created – nothing like a bit of complexity.
  • The personal income tax allowance will increase by an additional ┬ú235 to ┬ú9,440 from 6 April 2013 which gave the Government benches something to cheer about.
  • For the tax years 2014/15 and 2015/16, the increase in the higher rate threshold will be capped at 1%.The increases in the personal allowance will mainly benefit basic rate taxpayers, though most higher rate taxpayers will also benefit to some extent in 2014/15. However, capping the increase to the higher rate threshold at 1% per year, (less than the rate of inflation) will result in an additional 400,000 higher rate taxpayers by 2015/16. And that, my friends, is how a squeezed middle actually gets bigger!
  • For 2014/15 and 2015/16, the capital gains annual exempt amount will increase by 1% each year. The annual exempt amount for 2014/15 will be ┬ú11,000 increasing to ┬ú11,100 in 2015/16.
  • The inheritance tax nil-rate band will also increase by 1% in 2015/16. This means that the nil rate band will then apply to estates and transfers valued up to ┬ú329,000.Small beer maybe, but this is the first increase in the nil-rate band since 2009 so best to give thanks now.
  • The Government will consult on permitting direct ISA investments into SMEs, such as AIM listed companies, and will increase the ISA limit to ┬ú11,520 from 6 April 2013.

Corporation and business tax

  • The mainstream rate of Corporation Tax will be reduced to 23% from 1 April 2013 as already announced, then 21% (previously 22%) from 1 April 2014. This would give the UK the lowest mainstream CT rate in the G20 with the exception of the likes of Turkey and Russia. It’s got to be a good bet that there will be a future announcement of a further reduction to 20%, to harmonise with the small profits rate.
  • But don’t think that George has forgotten the public perception of the bank’s role in the financial disaster. The reduction in the CT rate has been countered for them by an increase in the Bank Levy to 0.130%. And this takes effect from 1 January 2013 rather than 1 April 2014. Banks get a further kicking from legislation designed to ensure that foreign bank levies paid by a foreign banking group trading in the UK cannot be claimed as a deduction against UK tax.
  • Remember when the Annual Investment Allowance (AIA), which has provided 100% capital allowances was ┬ú100,000 of qualifying plant and machinery? And then George reduced it to ┬ú25,000? Well now this will increase ten-fold to ┬ú250,000 for expenditure incurred in the 24 months from 1 January 2013. Up and down like the proverbial “drawers”!This will require careful planning for businesses to maximise the cashflow benefit.
  • Updated corporation tax reliefs for the creative sector, specifically in video games, animation and high-end television, have been announced. From 1 April 2013, qualifying companies will be able to choose between an enhanced deduction of 100% of qualifying expenditure or a payable credit of 25% of qualifying losses surrendered.
  • Following the campaigns to discredit multi-nationals such as Google, Starbucks and Amazon, new resources have been given to HMRC to counter abuse and specifically “risk identification and assessment capability for large multinationals”. Good luck with that – the results lately appear to be more to do with pressure from the public boycott of Starbucks than the ability of HMRC inspectors.
  • HMRC are also getting new transfer pricing specialist resources to accelerate the identification, challenge and resolution of these issues. Some might say that multinationals will conveniently need to review their transfer pricing policies and documentation at a time when the UKÔÇÖs tax rates are set to become some of the lowest in the G20 but I obviously wouldn’t comment on that sort of cynical speculation.
  • The Government has confirmed the introduction of a new cash basis for small unincorporated businesses. From April 2013, businesses with annual receipts of up to ┬ú77,000 (the VAT threshold)┬áwill be given the option to account for taxable profits on a cash receipts and payments basis. These businesses will also┬ábe allowed to remain on the cash basis as long as their turnover remains below ┬ú154,000.In addition, unincorporated businesses will also be able to use flat rates to calculate some types of expenses rather than have to calculate the actual amounts.

    Reduction of the administrative burden faced by very small businesses is always useful. However, some aspects of the proposal, which had been consulted on earlier in 2012, were controversial. It is not yet clear whether any changes have been made to those aspects and consequently how beneficial the proposals are likely to be.


Share incentives

For the last year or so, the Government has been consulting on a new ÔÇÿemployee shareholderÔÇÖ status. This is suggested to combine tax relief on employee shares (where no CGT would be payable on the disposal of shares acquired under the scheme) with the connected surrender of certain employment rights. It’s intended to create a more flexible labour market and to exploit employee share ownership as a way of boosting productivity by means of a more “engaged” workforce.
This is obviously sensible but it does rely on making the package as a whole is attractive to potential employees – and that has so far been announced piecemeal. The proposed relief from CGT came in October 2012 – todayÔÇÖs announcement merely reiterates this. (Didn’t the last government do this with “new money for this and that”? Thought so.) We’re going to have to wait for the draft Finance Bill to see the details of these rules, and hope that they do not introduce crazy tax complexity for employees who hold shares in what will be, in many cases, small and medium sized businesses.
Many in business have questioned whether the up-front charges to income tax created by employment-related securities legislation will act as a┬ápotential deterrent when shares are acquired. To help, George announced today that he is considering a┬áverylimited income tax relief for this up front charge. How big does the first ┬ú2,000 of value sound? Small change when shares of between ┬ú2,000 and ┬ú50,000 can actually be acquired under the arrangement. Obviously it’s great that they noticed but this would severely limit the attractiveness and scope of application of employee shareholder status.
Employers are still waiting for detailed rules on the terms of such shares. There is nothing new here – carry on.

Fuel duty

The Government has cancelled the 3.02 pence per litre fuel duty increase that was planned for 1 January 2013. The increase planned for April 2013 will now be deferred until September 2013. Future escalations will be implemented in September each year rather than April.


Tax avoidance measures

There was much trumpeting of the fiscal benefit of the UK-Swiss tax repatriation agreement. This has now been agreed in both parliaments and is calculated to be more than £5 billion over six years, including settlements, penalties and withholding tax revenues.

Four further specific avoidance schemes were targeted and George reiterated a commitment to introducing the General Anti Abuse Rule in 2013. He also listed a wide range of other initiatives designed to address the recent media furore mentioned above with Starbucks, Google and Amazon. A formal offshore evasion strategy will be published in 2013 – no, not how to do it, rather how they will stop it. Issues as widely disparate as evasion, avoidance and aggressive planning will be covered.

As a measure of how seriously he takes this issue, George announced that HMRC would escape the general cut in other Whitehall budgets and awarded them an extra ┬ú1bn of resources. With this they are expected to do great things including establishing a Centre of Excellence on offshore tax evasion. Strange that – the recent Select Committee sessions appeared to suggest that the UK already had one of those!
George announced that the Government won’t proceed with their 2012 proposal to deal with personal service companies. Apparently ┬áthey believe that HMRC’s new approach to policing IR35, together with the measures introduced in the public sector, are sufficient to prevent any tax loss resulting from employment which is disguised in this way. So no problem there with any public sector “employees” who are using companies? Yeah, right.

And finally….

The Government will set up the “Office for Unconventional Gas” – you heard it here first! This is part of its “drive to maximise economic production from natural gas resources, and consult on the tax regime for shale gas”. At least that’s what George said – but I think we all know better.

As ever, please call Princess Bernice (It is worth clicking that link, honest) or any other member of the Riley Tax Team if you have any questions or comments. You can get them on 01752 203651 or berniceconstantine@rileycom.co.uk

Jon Stacey

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