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Autumn Statement 2013

10 December 2013 No Comment

On the day that the Tory benches undid Ed Balls by shouting at him until he shouted back, red-faced and as spittle-flecked as an attack dog, Osbourne must have thought he had done enough to win the front page headlines in all the papers on Friday. Unfortunately for him, he was completely undone by the death of Nelson Mandela; The Autumn Statement for 2013 sunk with barely a ripple into the morass of “and in other news…”

To be honest it was never going to be a long runner anyway because even though George had a bit of “wriggle room” due to a fast-improving economic situation, he still presented a fiscally neutral budget, nicking a bit here, giving a bit there but never really showing any imagination or vision. It was full of phrases like “long-term economic plan”, “responsible recovery” and “discipline with public finances”.
As ever, not all of the anti-avoidance legislation was published in detail and there will be more to say after the release of the Draft Finance Bill 2014 on 10 December. So in the meantime I will give a brief run-through of the major points that George got out prior to being so rudely pushed from the front pages.

Corporation tax

The majority of the measures announced relate to large companies only. There are some new incentives for the film and theatre industry, changes to the bank levy rate, amendments to the rules on loss reliefs, and new incentives for oil and gas companies including and new exemption for onshore shale gas companies which will exempt profits worth up to 75% of a companies capital expenditure from the supplementary charge. There were measures to tidy up the rules for controlled foreign companies (CFC’s) and intra-group lending but, given the furore about the level of taxes paid by the likes of Amazon, Apple et al, no real attempt to curtail the obvious abuse of boundaries by the multi-national groups. They seem to more frightened of the moral stand of individuals (See Starbucks) rather than the legislation provided by governments.

Partnership taxes

There’s a definite focus on “manufactured partnerships” – where there are individuals in partnership with companies predominantly. The charge is that profits are being shared on a “tax motivated basis” – who would have thought it? From 5 December 2013, if significant amounts of profit are allocated to the non-individual partner, HMRC will have the power to reallocate the profits to the individual member for tax purposes. However, before they can do that they have to meet “a number of conditions”. First, the individual member must have the power to enjoy the non-individual’s share (here they will apply their usual connected person test;) the profit allocated to the non-individual member must be excessive (they define this as beyond the appropriate notional return on capital or payment for services). The final condition is that it is reasonable to suppose that some or all of the non-individual’s share is higher than it would have been had there not been profit allocation arrangements in place. Now obviously this has caused a little bit of consternation and some understandable structure reviews are taking place in the festive season. Just in case you thought you could have a non-UK chargeable individual in a partnership and avoid tax that way, HMRC will introduce the same rules to them from 6 April 2014.

Apparently some people have been using LLP’s to disguise employment as self-employment – really? The automatic presumption of self-employment for LLP members will cease and status will depend on “badges of partnership” which will be first shown in the draft Finance Bill later this week.

Transfer-pricing rules are also being amended from 25 October 2013 to remove an anomaly that allowed differential tax rate benefits to be realised by individuals with service company connections. There are also amendments to the rules on lending money to companies where transfer pricing rules also apply for connected persons.

VAT and indirect tax

HMRC recently lost a First-Tier tribunal case where it was decided that the compulsory online filing of VAT returns infringed the human rights of individuals who may have a disability or live in a rural area where broadband service precluded the use of the internet for filing – that would obviously never happen anywhere in the South West would it? Consultations will now be held so that VAT returns can be filed by smoke signal.

The government announced measures to combat the illicit trade in alcohol in much the same way that it tackled mobile phones and computer chips. This means that wholesalers will be required to register with HMRC from 2014 and take steps to ensure that they only deal with legitimate traders.

Employment taxes

The main headline was the abolition of Employer’s NIC starting from April 2015 on employees below the age of 21 who are earning below the Upper Earnings Limit of £40,285. George also announced a new Class 3A NIC starting in October 2015 for those that reach pensionable age (which might be 75 by then…who knows!) before 6 April 2016. This will apparently be a “time limited opportunity” to top up their additional pension records – sounds like a great gig to me but not one which will be a mainstream activity I suspect.

There are three new tax reliefs to encourage indirect employee ownership of company shares:

  • if a disposal of shares results in the controlling interest in a company being held in an employee ownership trust no CGT will be charged
  • No IHT will be charged on the transfer of assets or shares to an employee ownership trust (providing certain conditions are met)
  • From October 2014, bonus payments made to employees of indirectly employer-owned companies controlled by employee ownership trusts will be exempt from income tax up to a limit of £3,600 per annum. At present it’s a bit unclear whether these bonus payments can be made in cash or are restricted to shares. We’ll have to wait for the legislation to be published before we can firm up on this.

There will be increases in the limits for Share Incentive Plans (SIP) and Save As You Earn (Sharesave) share option schemes from April 2014. The SIP annual limit will increase to £3,600 for “free shares” and £1,800 for “partnership shares”. The maximum monthly limit for Sharesave contributions has doubled to £500.

There are various new anti-abuse rules to deal with false self-employment through intermediaries and legislation will be strengthened from April 2014. Company cars are also a target with new rules to enforce payment for private use of a car or van within the tax year and changes to ensure that where a company leases a car for an employee this is taxed as company car not as earnings.

There’s also new anti-avoidance legislation on the way to deal with artificial contract splits of duties where part is performed overseas to ensure that all income is taxed in the UK.

Personal taxes

A new transferable personal allowance will be introduced from April 2015 which will allow up to £1,000 to be transferred between partners earning no more than the basic rate.

The Big Society got a push too through a new social investment tax relief which means that the purchase of shares, certain loan investments and social impact bonds made in social enterprises (charities, community interest companies, community benefit societies) will qualify for income tax relief. The consultation document suggests that 30% relief will be given up to maximum annual investment of £1m per individual.

The annual ISA subscription limit is to rise to £11,880 for 2014/15 with the Junior ISA limit increasing to £3,840.

There were predictable changes to CGT on property – from April 2015, non-UK residents will be subject to CGT on future gains on sales of UK residential property. The Chancellor also announced that he will halve the final period exemption for capital gains tax private residence relief. This refers to the current exemption for the final 36 months of ownership of a residential property that has previously been used by the owner as his or her main residence. This was originally intended to cover home owners who struggled to sell their property after moving to another. However, the Government is now concerned that the relief is being abused by property investors – would that really be the case? Surely not?

To help with the changes above, the annual CGT exemption will be £11,000 for 2014/15 and £11,100 for 2015/16 and subsequent years. The exemption for most trustees will be £5,500 and £5,550 respectively. There were also various changes to trust taxes particularly trust income being treated as capital if undistributed after 5 years and the clarification of the IHT limit of £325k for all trusts created by the same settlor regardless of date.

George announced that in future, the state pension age will be formally linked to increases in life expectancy so that individuals spend no more than a third of their adult life as pensioners. The first consequence of this is that by the mid 2030’s the state pension age is likely to rise to 68. The second is that if you’re in your early teens, good luck with getting any pension at all. For those of you already receiving the state pension, look forward to your weekly increase of £2.95 from April 2014.

Tax avoidance and aggressive tax planning

This deserves a section all by itself these days as George is relying on new rules to plug all the black holes in the budget. He’s expecting to raise £6.8bn over this budget period and protect even more. There was continuing focus on what George calls “unacceptable” tax avoidance while obviously not telling us what they consider to be acceptable and legitimate avoidance.

Following a consultation earlier in the year, the Government is to introduce “objective criteria” for identifying high-risk promoters of tax avoidance schemes. They say that a higher standard of “reasonable excuse” and “reasonable care” will then apply to these firms. And, while these are both cornerstone concepts in the field of tax compliance that have been in place for many years, it is difficult to see how different standards of reasonable behaviour can apply and we look forward to seeing the details. In a clear effort to deter people from using high-risk promoters, the clients of these firms will be required to identify themselves to HMRC (and wear a T-shirt with “Tax Avoider” across the front). Can’t wait for details of how this will work in practice – it will rely on the promoter identifying themselves to the taxpayer as being in the high-risk category. “Come and talk to us, we’re high risk” probably isn’t that great a strap line is it?

Oh, and if you’re a user of a tax scheme which HMRC have successfully litigated against, you will have to pay across any tax due even if you were not party to the litigation. You’ll have to amend your tax return, and, if you’re so impertinent as to pursue your own further litigation, you will will face further penalties, a night in the stocks in front of parliament and a good spanking – OK, so I made that last one up but I think you get the picture…George isn’t happy!

And don’t think just because you have an offshore element to your tax planning that you’re safe. The No Safe Havens approach has generated enormous amounts of data for HMRC and they’re now working out how best to use it all. Don’t look now, the bogey man is coming.

And finally…..

George Osborne has admitted his new hairstyle is an attempt to cover up the fact he is going bald. He says that his new, brushed-forward image was an extension of his economic policy – because he had “turned it round to stop the recession”.

You couldn’t make this stuff up!

As ever, please call Princess Bernice 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

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