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The Chancellor’s Autumn Statement 2015 – They think it’s all over, it is Mao!

26 November 2015 No Comment

They think it’s all over, it is Mao!

Replying to a budget speech that you haven’t seen is one of the more thankless tasks in British politics and when you’re up against a Chancellor who gets a lucky break in his cashflow forecast it is probably even less enviable. However, John McDonnell knew that he had the answer to all George’s manoeuvring because he had a copy of Chairman Mao’s Little Red Book in his pocket and what’s more, he knew how to use it…or rather he didn’t.

It’s not like he was lacking in ammunition was it? I mean George Osbourne (well actually the Independent Office for Budget Responsibility obviously) has managed to “find” £25bn in extra tax revenue since the last announcement in July 2015, just over four months ago. McDonnell had some fantastic targets in the massive U-turn on tax credits (Osbourne is hardly a man in Maggie’s mould of “not for turning”) and the fact that George had announced that he would breach the Welfare Cap and therefore fall into the exact trap that he so carefully laid for a possible Labour Government in the March Budget. However, he chose to ignore these elephants in the room and reach for the rabbit up his sleeve. Yes, the Little Red Book which he then began to quote from.

To quote from John Crace’s classic sketch in The Guardian…

“Having made his point, he threw the Little Red Book across the dispatch box towards the chancellor…

George skipped and dodged his way through the pools of moisture that were collecting on the floor of the house as he made his way out. Sensing the mood, Jeremy Hunt decided that now was as good a time as any to bury bad news and agreed to talks with Acas. David Cameron even wondered if it was time to come clean and say it hadn’t been a pig. It had been a sao. And all McDonnell had been left with was its ear.”

And so to the detail:

Corporate taxes
  • Large companies are being asked to enter into a ‘framework for cooperative compliance’, a form of voluntary code of practice to encourage transparency in tax practice – I hear Google and Starbucks are already drafting theirs…
  • A special measures regime will be introduced for the small number of companies which persist in entering into various tax avoidance schemes. However, as usual with these statements, the detail behind these legislative changes has yet to be released: the draft Finance Bill 2016 is published on 9 December 2015 so expect some humdingers to be contained in that bundle of pre-Christmas joy.
  • Due to the changes in capital allowances, a two part anti-avoidance regime was introduced to stop businesses manipulating (as if) disposal values and the form of consideration received when taking over lease obligations. These changes are also expected to apply in a similar way to individuals.
  • Legislation will clarify the effect of the recent changes to goodwill amortisation to block schemes relating to corporate partners in partnerships with intangible assets – it’s amazing how creative the professions have got over the last 6 months!
  • In the snappily named “rules addressing hybrid mismatch arrangements” further amendments have been made from January 2017 basically designed to stop companies such as multinationals exploiting low tax rates in countries such as Ireland by the use of cross-border business structures.
  • Changes have been made to the rules on loans to participators to exempt charitable trusts as no individual benefits from a loan.
  • There is to be a further consultation on the company distributions rules as George wants to “reduce opportunities for income to be converted to capital in order to gain a tax advantage” and, while we can’t imagine that anyone would want to do this (much), the publication date is 2015 so we won’t have to wait long to find out what thrills are in store…
  • Again, no details yet but there will be changes to the rules in Finance Bill 2016 to amend the treatment of interest free loans and loans on non-market terms to tie in with the changes being brought in by FRS 102 – it’s a cracker.
  • And, while a stop was announced to banker bashing on a global basis in the summer budget from 2021, George hasn’t allowed the UK operations off the hook entirely and he announced a consultation on the scope of a UK bank levy. Bet they can’t wait for that to report.
Employment taxes
  • In the summer, George announced a new levy aimed at helping with the creation of 3 million apprenticeships. This levy will be introduced in Finance Bill 2016 and is set at 0.5% of an employer’s wage bill and collected via the PAYE regime. All employers are to be included in the scheme but each employer will get a £15,000 credit – this means that employers will only actually start paying the levy where their total payroll exceeds £3m pa – 98% of employers will be exempt.
  • There will be restrictions on the tax relief available for travel and subsistence costs where individuals are employed by agencies and umbrella companies. It may also catch workers who trade through personal service companies in certain circumstances up until 5 April 2016 when new legislation is introduced.
  • Our very favourite government body, the Office of Tax Simplification (OTS) has produced a report on status or in other words, employed or self-employed? Apparently, the report made a wide range of recommendations which include suggestions on further consultation, possible de minimis limits and potentially a statutory employment test. The Chancellor has now announced that the Government will take forward the majority of the recommendations. However, as at the time of writing, we have absolutely no idea what these will be!
  • If you’re operating a childcare voucher scheme for employees earning up to £150,000 you will have to restrict this from 6 April 2016 as the upper earning level is to be restricted to £100,000. There’s also going to be a minimum income level increase from 8 hours to 16 hours at the national living wage equivalent.
  • You may noticed a certain amount of furore in the press in recent months about certain diesel cars? Well, there had been some additional speculation about the possible removal of the diesel surcharge of 3% made on the cash equivalent of benefits in kind from April 2016. Just to ensure full punishment is taken, George announced that this will now remain in place until 2021 by which time Woody Allen may have brought out Sleeper 2 sponsored by VW, which will probably show that diesel is safer to drink than water…and before you point out to me that you weren’t watching films in 1973 when Sleeper was released…
    “Dr. Melik: You mean there was no deep fat? No steak or cream pies or… hot fudge?
    Dr. Aragon: Those were thought to be unhealthy… precisely the opposite of what we now know to be true.
    Dr. Melik: Incredible.”
  • The OTS have been busy again reviewing accommodation provided for employees and they are now calling for evidence on the efficacy of this provision – any amendment is likely to result in a Class 1A NIC increase.
  • If you’re coming to the end of your professional sporting career and your employer offers a testimonial from 25 November 2015, all income will be subject to tax and NIC. However, there’s a £50k exemption if the testimonial is not contractual or customary in nature, but don’t ask Val about darts or yard-of-ale sporting competitions…
  • George is going to make some changes to employee share schemes in Finance Bill 2016 which will be about simplification. There are no details available at present so that’s simple then!
  • And for those of you who persist in participating in disguised remuneration schemes it’s time to put away your outfits. Anything not caught in previous action will now be legislated in “a future finance bill” and deemed to take effect from 25 November 2015.
Indirect taxes
  • 6th form colleges in England can now become academies and therefore recover VAT on non-business supplies of education. This has long been a strange anomaly and is a welcome correction.
  • Because they lost a European Union case on the 5% reduced rate of VAT relating to energy saving materials, the government has now announced yet another consultation – it appears likely that the reduced rate can apply where there is a specific social purpose such as for elderly people or those on low incomes but that the rate will have to revert to the standard rate for all other supplies of this type.
Personal taxes and allowances
  • From April 2016, the purchase of property costing over £40,000 for investment or as a second home will incur a surcharge of 3% on the normal rate of stamp duty land tax (SDLT). An exemption to the surcharge is expected to be made available to companies and funds making significant investments in residential property which is considered to support Government policy increasing housing supply.
  • From April 2019 the due date for the payment of capital gains tax on the disposal of residential property will be accelerated so that it becomes payable 30 days from completion (compared with 31 January following the tax year, as now). This may present practical difficulties with regard to the calculation of tax due in connection with disposals of properties with complex ownership histories.
  • In the Summer Budget 2015, the Government had already announced a restriction in the tax relief given for interest incurred on buying investment property for private landlords (to be phased in over four years).
  • These additional measures are likely to lead to yet another reduction in the returns available from residential property investment.
  • The Innovative Finance ISA is coming in Autumn 2016 following the successful consultation on allowing equities available through crowdfunding to be included in ISA’s.
  • And as expected the government has decided to back off from preventing the use of deeds of variation for IHT purposes.
Other measures

  • in 2017-18 it’s likely that there will be a reduction in the filing and payment terms of Stamp Duty Land Tax from 30 to 14 days.
  • A seeding relief will be introduced for Property Authorised Investment Funds and Co-ownership Authorised Contractual Schemes (CoACS) which we think wins our “mouthful of the year award”.
  • You will fondly remember the annual tax on enveloped dwellings (ATED) which was a previous contender for the aforementioned award which is imposed where residential property is owned through corporate structures. A number of reliefs have been available particularly for property rental businesses and developers. These will now be extended to equity release arrangements which provide home reversion plans for owners in retirement.
  • HMRC is under increasing pressure to counter tax evasion and avoidance and to help with this process, George has allocated an additional £800m which is expected to deliver £7.2bn of additional tax revenue over the next 5 years. At the same time, it was announced that 200 staff will be transferred from local fraud investigations to local compliance activities, ready to be fully operational by October 2016. Although on the one hand this may appear to be a ‘dilution’ of HMRC’s fight against tax fraud, it could also be seen as an introduction of a
    new, possibly more aggressive, mindset into the local compliance teams, coupled with the sharing of skills for tackling all forms of evasion. We’ll know in a year, or three!
  • George, still in a blue funk about evasion, confirmed that Finance Bill 2016 will include the following provisions, each of which were recently the subject of one of those trendy consultation jobs:
    • A new criminal offence for tax evasion, which will remove the need for HMRC to prove that the taxpayer intentionally failed to declare offshore income and gains. It should be noted that a deminimis level of only £5,000 has been suggested in respect of this offence
    • New civil penalties for offshore tax evasion, including a new penalty linked to the value of the undeclared offshore asset and increased use of ‘naming and shaming’
    • New civil penalties for those who enable offshore evasion, again including ‘naming and shaming’
    • A new criminal offence for corporates which fail to prevent tax evasion.
  • And that’s not the end of it either as there are new rules on anti-avoidance in the Finance Bill 2016 too:
    • A special reporting requirement for those who continue to enter into tax avoidance schemes
    • A surcharge levied on taxpayers whose latest return is inaccurate due to use of a defeated scheme
    • A power enabling HMRC to publish the names of‘persistent’ avoiders
    • Restrictions on taxpayers who are deemed to persistently ‘abuse’ tax reliefs, limiting their access to certain tax reliefs for a specified period
    • Legislation to include promoters of schemes ‘regularly’ defeated by HMRC within the promoters of tax avoidance schemes regime
    • An additional penalty of 60% of tax due to be imposed where any scheme is successfully challenged under the general anti-abuse rule.

And finally…..

On the basis that HMRC are absolutely crap at answering phone calls and currently don’t use email to contact accountants and tax payers, George has announced the desire to “transform HMRC into one of the most digitally advanced tax administrations in the world by

the end of the decade” – now, it’s true that he didn’t specify which decade or even century he was going to achieve this feat in but even so, it’s admirable that MP’s didn’t laugh more at this than John McDonnell’s deficient speech. Apparently, HMRC aims to ensure that free apps and software that link securely to its systems will be made available and they will provide support to those who need help using digital technology. That’s going to be some transformation…
You couldn’t make this stuff up!


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