This month’s Autumn Statement included a mix of new announcements and preannouncements of tax (and other measures) that have now become customary under the current Government. Delivered with the Chancellor’s usual gusto, there were also a few surprises with a number of new allowances and reliefs outlined in addition to enhancements to some existing schemes, many of which had a pro-business slant. There was also significant, but probably not surprising, emphasis on anti-avoidance and evasion measures. Let’s take a closer look at some of the tax measures included.

Close Company Loans to Participators Regime

It was announced that following the consultation launched during the summer, there will be no immediate changes to the structure or operation of the tax charge on loans to participators by close companies.

The Institute’s Northern Ireland Tax Committee had called for no changes to the regime in its response to that consultation, arguing that the consultation document lacked any meaningful data to support the apparent concern expressed regarding abuse. In addition, HMRC have sufficient powers at their disposal to deal with any perceived abusive schemes or practices that may arise in the future.

The consultation had originally proposed several options for changing the regime including introducing a new permanent tax charge on such loans.

Income Tax Measures

As announced at Budget 2013, people born after 5 April 1948 will be entitled to a basic personal allowance of £10,000 for the tax year 2014/15, up from £9,440 in 2013/14.

The ‘higher rate threshold’ (the sum of the basic personal allowance and the basic rate limit) will be £41,865. As the personal allowance will be £10,000 for 2014/15, this means that the basic rate limit will be £31,865, down from £32,010 in the current tax year. The rates of tax will be announced at Budget 2014.

For 2014/15, there are no changes to the percentage rate of contribution for Class 1, Class 1A, Class 1B and Class 4 National Insurance Contributions (NICs) but there are changes to all of the thresholds and limits. The weekly rates for Class 2 and Class 3 NICs will be increased. The Class 1 Upper Earnings Limit and the Class 4 Upper Profits Limit for NICs will continue to be aligned with the point at which higher rate tax becomes payable.

From 6 April 2015 employers will no longer be required to pay Class 1 secondary NICs on earnings paid up to the Upper Earnings Limit to any employee under the age of 21. This will apply to both existing employees and to employers taking on new staff. This measure is in addition to the new £2,000 Employment Allowance which will become available to employers from April 2014.

From April 2015, a spouse or civil partner who is not liable to income tax or not liable above the basic rate for a tax year will be entitled to transfer £1,000 of their personal allowance to their spouse or civil partner provided that the recipient of the transfer is not liable to income tax above the basic rate. A maximum benefit of £200 will accrue to any qualifying couple availing of this new relief, based on the current basic income tax rate of 20%.

Capital Gains Tax (CGT)

A number of changes were announced to the UK CGT regime:

• The final period exemption for principle private residence relief will be reduced from 36 months to 18 months from April 2014. This measure is designed to “reduce the incentive for those with multiple homes to exploit the rules”
• From April 2015, CGT on gains made by nonresidents disposing of UK residential property will be subject to UK CGT. A consultation on how best to introduce the new CGT charge is to be published early next year.
• The annual exempt amount will increase to £11,000 for the year 2014/15 and £11,100 for 2015/16 and subsequent years, up from the current amount of £10,900.

Creative Sector Tax Reliefs

Subject to State aid approval, from April 2014 the rate of film tax credit for surrenderable losses will be 25% on the first £20 million of qualifying core expenditure (subject to a maximum of 80% of qualifying core expenditure) and 20% thereafter (to a maximum of 80% qualifying core expenditure). The minimum UK expenditure qualification will also change from 25% to 10%.

These proposed enhancements to film tax relief follow on from the introduction of the new creative sector reliefs available to companies from 1 April 2013 for qualifying animation and high-end television productions. Video game relief remains subject to challenge by the European Commission and is not currently available.

The Government also announced plans to introduce new support for theatres from April 2015. A formal consultation will therefore be launched in early 2014 that considers a limited tax relief available to companies for commercial theatre productions and a targeted tax relief for theatres investing in new works or touring productions to regional theatres.

Avoidance, Evasion et al

The government announced 5 measures to help tackle tax avoidance which had immediate effect from 5 December 2013:

• Changes to the debt cap provisions
• Controlled foreign companies: profit shifting
• Partnerships review: partnerships with mixed membership
• Avoidance schemes using total return swaps
• Double Taxation Relief: revenue protection

Additional other measures announced include:

• Charities established for tax avoidance purposes – legislation will be introduced in Finance Bill 2014 to prevent a charity from being entitled to claim charity tax reliefs if one of the main purposes of establishing the charity is tax avoidance.
• High risk promoters – a new information disclosure and penalty regime for high risk promoters of avoidance schemes will be introduced.
• Onshore Intermediaries – false employment – this measure is aimed at preventing employment intermediaries being used to avoid employment taxes and obligations by disguising employment as self-employment.
• Dual Contracts – legislation will be introduced in Finance Bill 2014 to prevent a small number of high earning non-domiciled individuals from avoiding tax by creating an artificial division of the duties of one employment between contracts in both the UK and overseas.

Autumn Statement 2013 also announced further action to reduce levels of tax debt and to reduce fraud, error and debt in the tax system; this will be achieved via range of differing measures including working with a private sector partner to carry out fraud and error checks and making use of fixed term appointment staff to collect debts that HMRC would otherwise be unable to collect.

Since Budget 2013 the government has signed automatic tax information exchange agreements with the Isle of Man, Guernsey, Jersey, the Cayman Islands, Gibraltar, Bermuda, Montserrat, the Turks and Caicos Islands and the British Virgin Islands. It was therefore announced that HMRC will launch a project in early 2014 to ensure it is ready to exploit the data generated by these new agreements.

At Budget 2014 HMRC will also consult on a range of enhanced sanctions to penalise those who hide their money offshore.

In addition to introducing a new regime of follower penalties, the government will remove the cash advantage from sitting and waiting during a tax avoidance dispute by issuing new ‘pay now’ notices to taxpayers. These will initially be issued to taxpayers who are using tax avoidance schemes which have already been defeated in the courts. The government will also consult on the scope for widening the criteria for ‘pay now’ notices.

HMRC have also been set an ambitious target of increasing additional compliance revenues by a further £3.7 billion by the end of 2015-16, on top of the £120 billion already forecast.

Andrew Walker, Tax Partner with Smith & Williamson takes a closer look at these and other developments in the avoidance/evasion arena in next month's edition of tax.point.

Corporation Tax

Changes to ease the rules restricting the availability of relief for corporation tax trading losses when companies change ownership were announced. The rules will be amended in 2 ways:

• by allowing a holding company to be inserted at the top of a group of companies; and
• by amending the definition of ‘a significant increase in capital’ when a change of ownership occurs in a company with investment business, where it will be amended to the capital in the company after the change of ownership exceeding the amount of capital before the change of ownership by both £1 million and 25%.

The complex corporation tax rules on associated companies will also be replaced with a new simpler test though this measure will have limited impact once the main and small profits rate of corporation tax merge at the planned 20% rate from 1 April 2015.

Charities

Amongst a range of measures, there will be a series of changes to the tax regime for Community Amateur Sports Clubs (CASCs). As part of these changes, from April 2014 donations by companies of gifts of money to CASCs will be eligible for corporate Gift Aid.

HMRC will also develop a new IT system to allow charities that want to register with the Charity Commission for England and Wales, and also to apply to HMRC to claim charity tax reliefs, to submit their applications through a single online portal.

The government will also legislate to make it clear that partial relief from Stamp Duty Land Tax (SDLT) is available where a charity purchases property jointly with a non-charity. The charity will be able to claim relief from SDLT on the proportion of the purchase attributable to it. This change will take effect from the date on which Finance Bill 2014 receives Royal Assent.

The rate of the bank levy increases to 0.156% from 1 January 2014 and changes are also planned to the bank levy's detailed design that will have the effect of widening the tax base.

IHT and Trusts

Following the consultation announced at Budget 2013, legislation will be introduced to simplify filing and payment dates for IHT relevant property trust charges. In addition legislation will also treat income arising in such trusts which remains undistributed for more than 5 years as part of the trust capital when calculating the 10-year anniversary charge.

The government will also consult on proposals to split the IHT nil rate band available to trusts with a view to delivering this change alongside simplification of the trust calculations in 2015.

With immediate effect from 5 December 2013, the government extended the CGT ‘uplift’ provisions that apply on the death of a vulnerable beneficiary and further widened from 2014-15 the range of trusts that qualify for special income tax, CGT and IHT treatment. A consultation will also be launched to look at further ways to reform the tax treatment of trusts established to safeguard property for the benefit of such vulnerable people.

It was also announced that HMRC will be investing in a new online service which will enable people to proceed with their application for probate and submit Inheritance Tax accounts online. This is due to be available in 2016.

Miscellaneous Measures

In a move which will be welcomed by business and households alike, a freeze on fuel duty for the remainder of the current Parliament was announced.

The Government has also asked the Office of Tax Simplification to carry out a review of what can be done to improve the competitiveness of UK tax administration further. In addition, 9 of the ‘Quick Wins’ identified by the OTS’s interim report on employee benefits and expenses will be implemented by the end of January 2014.

The Chancellor announced a new tax allowance taking immediate effect from 5 December 2013 to kick start the exploitation of onshore oil and gas (including shale gas) in the UK. The new tax allowance builds on the success of offshore field allowances in increasing investment in technically and commercially challenging fields. Like existing field allowances, it reduces the tax rate on a portion of a company’s profits from 62% to 30% to reflect the challenging nature of these developments. Companies will receive an allowance equal to 75% of their capital spend on these projects.

Under the badge of supporting employee ownership new measures were announced as follows:-

• a relief from capital gains tax on disposals of shares that result in a controlling interest in a company being held by a trust used as an indirect employee ownership structure;
• an annual exemption from income tax on bonuses or equivalent payments up to an amount of £3,600 paid to employees of companies that are indirectly employee owned; and
• an increase in the maximum annual value of shares that an employee can acquire with tax advantages under the Share Incentive Plans to £3,600 a year for ‘free’ shares and to £1,800 a year for ‘partnership’ shares. The Save As Your Earn savings contribution limit will be doubled from £250 to £500. This will be the first increase for these schemes in over a decade.

From April 2014, the income tax relief for interest paid on loans to invest in close companies and employee-controlled companies will be extended to investments in such companies resident throughout the European Economic Area. Transfers of shares and other assets to employee ownership trusts will also be exempt from inheritance tax providing certain conditions are met.

Interestingly, the government intends to consult on draft amendments to regulations which will clarify the exceptional circumstances in which HMRC will allow alternative options for VAT registered businesses that are not able to file VAT returns online. This might well be as a result of recent Tribunal decisions on this very matter.

The government has also decided to provide tax relief on investment in social impact bonds where the special purpose vehicle is structured as a company limited by shares. A road map for social investment will be published in January 2014 setting out next steps. These include seeking state aid clearance for a larger tax relief scheme and looking at options for supporting indirect investment.

The government will also introduce a new tax relief for equity and certain debt investments in social enterprises with effect from April 2014. Organisations which are charities, community interest companies or community benefit societies will be eligible.

Taking effect from 6 April 2014, legislation will be introduced to:

• ensure individuals make payments for private use of a company car or van in the relevant tax year
• ensure that where an employer leases a car to an employee, the benefit is taxed as a car benefit rather than as employment earnings (Finance Bill 2014)

In the area of pension savings, the government will introduce individual protection 2014 (IP14) as a consequence of the reduction in the lifetime allowance to £1.25 million from 6 April 2014. Individuals with IP14 will have a lifetime allowance of the value of their pension savings on 5 April 2014 subject to an overall maximum of £1.5 million.

Readers should note that Finance Bill 2014 draft clauses were not available at the time of writing. These were due to be published on 10 December together with a range of consultations, the aforementioned should therefore be considered in light of the draft clauses.

The full complement of documents on the Autumn Statement is available for digestion by tax enthusiasts at https://www.gov.uk/government/topical-events/autumn-statement-2013

Leontia Doran is UK Taxation Specialist for Chartered Accountants Ireland.

Email: leontia.doran@charteredaccountants.ie