The Autumn Statement – was it a U turn?

George Osborne revealed (we use that term loosely, given his track record...) the results of the Government’s spending review earlier this week

If you’ve read any of our previous blogs, you’ll know that we don’t hastily publish our findings simply producing (in some cases meaningless) facts and figures.

We prefer to let the dust settle and cover some of the more interesting points, in our usual light-hearted manner. As always, what the Chancellor didn’t say is more important than what he did say..

There was the usual political posturing we’ve come to expect from George Osborne and this resulted in the opposition quite literally throwing the book (in this case Chairman Mao’s) at him.

Once again, The Office of Budget Responsibility (or OBR for short) came to George’s rescue, magically producing a £27 billion improvement in the public finances enabling him to back-peddle on tax credit cuts (see below). Although to quote Cilla Black (RIP), “surprise, surprise”, less than 24 hours later the Treasury’s independent forecaster was casting doubt on these figures as you can see here.

Tax credits

George Osborne said that he had ‘listened to’ concerns over tax credits and thanks to the OBR (see above) was able to announce a U-turn to the cuts proposed in the Summer Budget. However quite clearly he hasn’t been listening carefully enough because not all of these cuts have been shelved (see below).

The Treasury is still forging ahead with a cut to the ‘income rise disregard’ which is the amount of extra money a tax credit claimant can earn before losing these benefits. In July, George had announced that this was being cut from £5,000 to £2,500 and that still applies.

This will come as a blow in particular to those small start-ups who rely on tax credits to help fund their living expenses in the early years of their business.

Reduction in the payment window for capital gains tax on residential property

Usually any capital gains tax (CGT) liability arising on the sale of a residential property is due by 31 January following the tax year in which the disposal occurs. So for unconditional contracts the disposal date is the date of exchange. For example, if contracts are exchanged on 1 November 2016, this is a disposal in the 2016/17 tax year and any tax payable will be due on 31 January 2018.

From April 2019 taxpayers will be required to pay upfront any CGT due on the disposal of UK residential property within 30 days of the completion of the disposal. A payment on account will not be required on properties which are not liable to CGT because they qualify for principal private residence relief.

Several issues arise from these proposed changes:-

  • Claiming principal private residence relief can be a complex area, as anyone whose read our property tax guide will know. So what happens if HMRC determine at a later date that a property sale is now liable to CGT and not tax free?
  • If you’re looking to use sale proceeds from the sale of a residential property that does not qualify for PPR, to fund a new property purchase, you might need to consider other ways of funding the liability.
  • It isn’t clear at the moment how these new changes will be administered. It might be that the responsibility falls on the conveyancer, who’ll need to deduct CGT and file a tax return on the vendor’s behalf. This will obviously mean higher costs of sale as a result.

Company car diesel supplement

Company car benefits are calculated based on the list price of the car multiplied by an appropriate percentage according to the level of the car’s CO2 emissions up to a maximum of 37%.

For diesel cars the relevant percentage is increased by 3% subject to the overall maximum. This supplement was due to be abolished in 2016-17.

However, it’s now been decided that the diesel supplement will be retained until 2021 when EU-wide testing procedures will ensure new diesel cars meet air quality standards even under strict real world driving conditions.

We therefore recommend you review your company car policy if you or your employees use diesel company cars. It certainly looks like the Chancellor is taking advantage of what we term the ‘Volkswagen effect’ covered in our previous blog here.

Apprenticeship Levy

It was previously announced in the Summer Budget that the government would consult on creating three million new apprenticeships by 2020 which would be funded by a levy on large employers. It’s now been confirmed that the levy will come into force in April 2017 and will be payable by UK employers.

The levy will be 0.5% of the employer’s wages bill (not including benefits in kind) and will be paid via PAYE. Each employer will receive an allowance of £15,000 to offset against the levy. The allowance means that the levy will only be payable on a pay bill exceeding £3m per year. Connected persons rules will apply, restricting employers who operate multiple payrolls.

Although this will be payable by less than 2% of the largest employers, the retail sector feels particularly aggrieved by this move if you believe the newspaper report here.

SDLT rate increase on purchase of additional residential property

From 1 April 2016, an additional 3% will be applied to the current SDLT rate for the purchase of additional residential properties above £40,000, such as buy to let properties and second homes.

The higher rate will not apply to purchases of caravans, mobile homes or houseboats, or to corporates or funds making significant investments in residential property.

There will be a further consultation on the policy detail, including whether an exemption for corporates and funds owning more than 15 residential properties is appropriate.

After blowing up the housing bubble, the Chancellor has well and truly burst it for buy to let landlords with this latest announcement.

It’s not yet clear how these changes will affect parents who are helping their children buy a property or Trusts which may own a number of properties for different beneficiaries.

Auto-enrolment changes rescheduled

The minimum amounts that must be contributed to pension schemes under the auto-enrolment rules are scheduled to increase over the next three years. Currently, the total minimum contribution is 2%, of which a minimum of 1% must be made up of employer contributions. These limits were set to increase on 1 October 2017 to 5% and 2%, respectively, before rising to 8% and 3% with effect from 1 October 2018.

George announced that these changes to the minimum contribution rates under auto-enrolment would be deferred for six months each, to align them with the tax year. The increase to 5% will be deferred until April 2018 and the increase to 8% will be deferred until April 2019.

These changes have been heralded as a simplifying measure for businesses, thereby reducing the administrative complexity of the changes. This is perhaps some recognition that not all small employers are fully prepared for the impact that auto-enrolment will have on their business.

Encouraging large businesses to be transparent

For some time now large multi-national corporations have been in the spotlight for exploiting loopholes in double taxation agreements to minimise their exposure to tax much to the annoyance of many small business owners we’ve spoken to.

HMRC announced in the Summer Budget 2015 that they would consult on new measures to target large businesses that deliberately and consistently undertake aggressive tax planning.

HMRC intend to introduce legislation so that large businesses will have to publish their board’s detailed tax strategy, its appetite for tax planning and its relationship with HMRC. If businesses are not transparent, HMRC will increase the reporting requirements on the company, including asking for the tax advice sought. There’s also the threat of being publicly named and shamed if they’re subject to these special measures.

The enhanced transparency for large businesses is designed to deter businesses from entering into tax planning that is deemed to be aggressive and to encourage a low-risk approach to managing tax compliance.

These changes are designed to assist HMRC in identifying at an early stage those businesses that continue to adopt aggressive tax planning strategies and react accordingly.

HMRC are also proposing to introduce a voluntary code of practice, which in itself will indicate whether a business wishes to be transparent. It will be interesting to see which multi-nationals adopt this code of practice – we can think of at least one well-known business owner who is never one to miss a PR opportunity

If you’d like to discuss how these changes might affect you, or would like to discover how we can help your business, simply email our friendly tax adviser, [email protected]thefriendlyaccountants.co.uk or give us a call on 01202 048696

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