Today, the Chancellor, Philip Hammond, delivered his proposals to prepare the UK economy to be resilient as the UK exits the EU.
He highlighted strengths of the UK economy (the reach of the service industry and successes in science, high-tech and disruptive technologies) while also summarising the challenges from the productivity gap, housing problems and imbalances in growth and prosperity. He stressed the Government will maintain its commitment to fiscal discipline while recognising the need for investment to drive productivity.
The Government will prioritise high value investment in infrastructure and innovation while a new charter for budget will provide some headroom for the future.
This was a tame Autumn Statement by recent standards with none of the signature “rabbits” Philip Hammond’s predecessor revelled in revealing.
From a Channel Islands perspective, the main point of note was the confirmation that the legislation on the changes to the UK’s non-domiciled regime and the extension of IHT on UK residential property will be issued on 5 December. We will issue an alert on the impact of the legislation once this is released.
Other measures that may affect businesses in the Channel Islands are as follows:
- Bringing non-resident companies’ UK income into the corporation tax regime – The government will consult on bringing all non-resident companies into the Corporation Tax regime if they receive taxable income from the UK. If implemented, this may mean that Non-Resident Landlords currently filing Income Tax returns will file Corporation Tax returns going forward, and may therefore be subject to a lower tax rate of 17%. We await further details on these proposals.
- Tax deductibility of corporate interest expense – The government has confirmed it will limit the tax deductions that large groups can claim for their UK interest expense from April 2017. These rules will apply where a group has net interest expense of more than £2 million, net interest expense exceeds 30% of UK taxable earnings, and the group’s net interest to earnings ratio in the UK exceeds that of the worldwide group. If the above reforms to non-resident companies come into force, these interest restrictions will therefore apply to Non-Resident Landlords under the Corporation Tax regime.
- Offshore funds – Performance fees incurred by Reporting Funds will not be deductible against reportable income from April 2017, and will instead reduce any tax payable on disposal gains.
- Insurance Premium Tax (IPT) – The headline rate of IPT will rise to 12% from 1 June 2017.
- Requirement to register offshore structures – The Government will consult on a new legal requirement for intermediaries arranging complex structures for clients holding money outside the UK to notify HMRC of the structures and related clients. Again there are no details on the potential scope of this but certainly something to watch.
- Strengthening tax avoidance sanctions and deterrents – As previously announced, the government will introduce a new penalty for any person who has enabled a tax avoidance arrangement that is later defeated by HMRC. The government will now remove the defence of having relied on non-independent advice as taking ‘reasonable care’ when considering penalties for those that use such arrangements.
Alongside the Autumn Statement delivered by the Chancellor today, HMRC has released its own Tax Policy changes and technical updates document. This aims to provide an update on the consultations undertaken to date and comment on changes to allowances and rates, however, it does not seem to be complete in its coverage of all measures announced today. The document is available here and there is also an HMRC webpage which hosts all tax related documents and other announcements for Autumn Statement 2016.
This will be the last Autumn Statement of its type, as the Chancellor has announced a move to one fiscal event per year, addressing the issue of the frequency of changes to the tax system that individuals and businesses have to deal with.
The other major tax measures announced are as follows:
- The Chancellor confirmed that the Government would stick to the Business Tax Road Map and restated the 17% rate from April 2020
- Amendments in Finance Bill 2017 will be made to the Patent Box rules, covering the case where Research and Development (R&D) is undertaken collaboratively by two or more companies under a ‘cost sharing arrangement’. This will have effect for accounting periods commencing on or after 1 April 2017
- Minor changes will be made in Finance Bill 2017 to ensure that the hybrid and other mismatches legislation works as intended. The changes will have effect from 1 January 2017
- The SSE rules will be simplified from April 2017 to remove the investing requirement and provide a more comprehensive exemption for companies owned by qualifying institutional investors
- There are no new allowances for industrial buildings as some had argued for but there will be a five year 100% business rate relief for new fibre infrastructure and 100% allowance for ultra-low emission vehicle charge point infrastructure
- There will be additional investment in R&D as announced by the Prime Minister in her speech to the CBI earlier this week
- Legislation in Finance Bill 2017 and secondary legislation will clarify the rules on capital allowances, chargeable gains and investments by co-ownership authorised contractual schemes (CoACS) in offshore funds, as well as information requirements on the operators of CoACS
- The rules on the taxation of dividend distributions to corporate investors in Authorised Investment Funds (AIFs) will be amended to allow exempt investors, such as pension funds, to obtain credit for tax paid by AIFs (draft secondary legislation expected early 2017)
- For smaller businesses the Government will establish a review on the different working structures available – the aim being to tackle the growing cost to public finances of incorporation and provide a fair treatment for all workers
- Planned business rates reductions will be implemented
- Commitments to the Oil & Gas industry will be maintained and the Petroleum Revenue Tax regime simplified
- The 2017/18 personal allowance and higher rate band will be increased as expected. The Government will maintain its targets for the personal allowance and higher rate threshold by 2020
- The benefits of employee shareholder status are abolished in respect of shares received in return for entering into an Employee Shareholder agreement on or after 1 December 2016
- The pensions money purchase allowance (applicable where funds have been drawn down) will be reduced to £4,000 per year. No other changes have been announced
- Proposals to remove the benefit of salary sacrifice (excepting low emission vehicles, pensions, childcare and cycle to work) will be brought in from April 2017, though there will be some transitional provision for long term arrangements to 2021
- There are new proposals to tackle disguised remuneration – addressing the self-employed and employers. Tax relief for an employer’s contributions to disguised remuneration schemes will be denied unless tax and National Insurance are paid within a specified period
- The employers’ and employees’ national insurance thresholds will be aligned
Tax avoidance/tax administration
- A new penalty will be introduced for those enabling tax avoidance schemes successfully challenged by HMRC
- Partial Enquiry Closure Notices will allow HMRC to close individual discrete matters in an enquiry, ahead of the enquiry being finally concluded
- Finance Bill 2017 will strengthen the regime for disclosure of avoidance of indirect tax with effect from 1 September 2017
- Finance Bill 2017 will also introduce a new penalty for participating in VAT fraud which will apply to businesses and company officers when they knew or should have known that their transactions were connected with VAT fraud
- Abuse of the VAT flat rate scheme will be tackled
VAT and other indirect taxes
- There will be a consultation on reform of VAT grouping
- A further freeze on fuel duty will be put in place
Stamp Duty Land Tax
- No changes have been announced