Introduction

This was Chancellor Philip Hammond’s first (and last!) Autumn Statement since he was appointed to this role in the summer. New tax announcements were few and far between compared to previous Budgets and Autumn Statements presented by the former Chancellor George Osborne.

With the big red Article 50 Brexit button looming, the new Chancellor was clearly adopting a “steady as it goes” approach this time around. So what did he have to offer for tax enthusiasts last month? We’ve pored over the documents to bring you more details in this article on the new tax measures announced.

Autumn Budget 2017

There will be no further Autumn Statements going forward. The Spring 2017 Budget will be the final spring budget. From Autumn 2017, there will be an Autumn budget, followed by a spring statement solely responding to the Office of Budget Responsibilities’ fiscal report. However, the government will retain the option to make changes to fiscal policy at the Spring Statement. In the area of tax, this will probably be used mainly to introduce anti-avoidance legislation and close down planning schemes.

Clearly this change means that the Autumn Budget will be the major fiscal event for the government every year. An earlier Budget does of course provide the government with more wriggle room on economic and fiscal matters. Brexit springs to mind here.

Northern Ireland

For Northern Ireland, the switching on of the NI corporation tax rate still remains subject to the NI Executive “demonstrating it has placed its finances on a sustainable footing”.

Making Tax Digital

Probably most telling last month was what the Chancellor didn’t say. The expected announcement on Making Tax Digital didn’t feature in his speech. However the official documents confirm that in January 2017 the government will publish its response to the Making Tax Digital consultations and “provisions to implement the previously announced changes”. Watch this space.

Salary sacrifice

Following consultation, the tax and employer national insurance advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, Cycle to Work and ultralow emission cars.

Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.

Tax avoidance and evasion

Once again, this area contained the bulk of the announcements. The government plans to “invest” further in HMRC to increase its activity on countering avoidance and taking cases forward for litigation. This is expected to bring forward over £450 million in “scored” revenue by 2021–22.

Disguised remuneration schemes

Budget 2016 announced changes to tackle use of disguised remuneration schemes by employers and employees. The scope of these changes will be extended to tackle the use of disguised remuneration avoidance schemes by the self-employed.

Further, the government will take steps to make it less attractive for employers to use disguised remuneration avoidance schemes, by denying tax relief for an employer’s contributions to disguised remuneration schemes unless tax and National Insurance are paid within a specified period.

Strengthening tax avoidance sanctions and deterrents

As signalled at Budget 2016, to provide a strong deterrent to those enabling tax avoidance, the government will introduce a new penalty for any person who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC.

The defence of having relied on non-independent advice as taking ‘reasonable care’ will be removed when considering penalties for any person or business that uses such arrangements.

Offshore tax evasion

The government will introduce a new legal requirement to correct a past failure to pay UK tax on offshore interests within a defined period of time, with new sanctions for those who fail to do so.

A consultation will be launched on a new legal requirement for intermediaries arranging complex structures for clients holding money offshore to notify HMRC of the structures and the related client lists.

Hidden economy

Legislation will extend HMRC’s data-gathering powers to money service businesses. This is targeted at identifying those operating in the hidden economy.

Following consultation, the case for making access to licences or services for businesses conditional on them being registered for tax will be considered. Proposals to strengthen sanctions for those who repeatedly and deliberately participate in the hidden economy will be considered as part of Budget 2017.

Corporation tax

Despite speculation that the rate of corporation would be reduced lower than the 17% rate which is legislated to begin on 1 April 2020, no further changes were announced to the main rate. The government did stress its commitment to the business tax road map which sets out plans for the major business taxes to 2020 and beyond with the aim of having the lowest corporation tax rate in the G20.

Research & development (“R&D”)

The tax environment for R&D is to be reviewed to look at ways to build on the introduction of the ‘above the line’ R&D tax credit to make the UK an even more competitive place to carry out R&D.

Interest deductions

Following consultation earlier this year, from April 2017 legislation will limit the tax deductions that large groups can claim for their UK interest expenses.

These rules will limit deductions where a group has net interest expenses of more than £2 million, net interest expenses exceeding 30% of UK taxable earnings and the group’s net interest to earnings ratio in the UK exceeds that of the worldwide group.

The proposals are to be widened to protect investment in public benefit infrastructure. Banking and insurance groups will be subject to the rules in the same way as groups in other industry sectors.

Loss relief

The planned reforms to corporation tax loss relief will go ahead. Having consulted on this earlier in the year, this measure will restrict the amount of profit that can be offset by carried forward losses to 50% from April 2017, while allowing greater flexibility over the types of profit that can be relieved by losses incurred after that date.

The restriction will be subject to a £5 million allowance for each stand-alone company or group. In implementing the reforms the government will “take steps to address unintended consequences and simplify the administration of the new rules”. The amount of profit that banks can offset with losses incurred prior to April 2015 will continue to be restricted to 25%.

Non-resident companies

The government is considering bringing all non-resident companies receiving taxable income from the UK into the UK corporation tax regime. At Budget 2017, the government will consult on the case and options for implementing this change.

Bank levy reform

As announced at Summer Budget 2015, from 1 January 2021, the bank levy charge will be restricted to UK balance sheet liabilities. Following consultation, the government confirms that there will be an exemption for certain UK liabilities relating to the funding of non-UK companies and an exemption for UK liabilities relating to the funding of non-UK branches.

Details will be set out in the government’s response to the consultation, with the intention of legislating in Finance Bill 2017–18.

Substantial shareholdings exemption (“SSE”) reform

Following consultation, the government will make changes to simplify the rules, remove the investing requirement within the SSE and provide a more comprehensive exemption for companies owned by qualifying institutional investors. The changes will take effect from April 2017.

Dividend distributions to corporate investors

The rules on the taxation of dividend distributions to corporate investors will be modernised in a way which allows exempt investors, such as pension funds, to obtain credit for tax paid by authorised investment funds

Museums and galleries tax relief

The scope of the museums and galleries tax relief announced at Budget 2016 is to be widened to include permanent exhibitions so that it is accessible to a wider range of institutions across the country.

The rates of relief will be set at 25% for touring exhibitions and 20% for non-touring exhibitions and the relief will be capped at £500,000 of qualifying expenditure per exhibition. The relief will take effect from 1 April 2017, with a sunset clause which means the relief will expire in April 2022 if not renewed. In 2020, the government will review the tax relief and set out plans beyond 2022.

Income tax and national insurance

There were few major announcements in this area despite much speculation beforehand that the Chancellor would once again target further restrictions to tax relief on pension contributions.

Rates and allowances

The Autumn Statement did not make any changes to the tax rates and allowances previously announced for 2017/18. A useful summary of these has now been published.

National insurance

As recommended by the Office of Tax Simplification (OTS), the national insurance secondary (employer) threshold and the national insurance primary (employee) threshold will be aligned from April 2017, meaning that both employees and employers will start paying national insurance on weekly earnings above £157.

Removing National Insurance from the effects of the Limitation Act

From April 2018, the government will remove NICs from the effects of the Limitation Act 1980 and Northern Ireland equivalent. This will align the time limits and recovery process for enforcing national insurance debts with other taxes. The government will consult on the details.

Legal support

From April 2017, all employees called to give evidence in court will no longer need to pay tax on legal support from their employer.

Valuation of benefits in kind

The government will consider how benefits in kind are valued for tax purposes, publishing a consultation on employer-provided living accommodation and a call for evidence on the valuation of all other benefits in kind at Budget 2017.

Employee business expenses

A call for evidence will be published at Budget 2017 on the use of the income tax relief for employees’ business expenses, including those that are not reimbursed by their employer.

Business investment relief for non-doms

The government will change the rules for the Business Investment Relief (BIR) scheme from April 2017 to make it easier for non-domiciled individuals who are taxed on the remittance basis to bring offshore money into the UK for the purpose of investing in UK businesses. Further improvements to the rules for the scheme will be considered.

Foreign pensions

The tax treatment of foreign pensions will be more closely aligned with the UK’s domestic pension tax regime by bringing foreign pensions and lump sums fully into tax for UK residents, to the same extent as domestic ones.

Social Investment Tax Relief (SITR)

From 6 April 2017, the amount of investment social enterprises aged up to 7 years old can raise through SITR will increase to £1.5 million.

Other changes will be made to ensure that the scheme is well targeted. Certain activities, including asset leasing and on-lending, will be excluded. Investment in nursing homes and residential care homes will be excluded initially; however the government intends to introduce an accreditation system to allow such investment to qualify for SITR in the future.

The limit on full-time equivalent employees will be reduced to 250. The government will undertake a review of SITR within two years of its enlargement.

Capital gains tax (CGT)

There were no major changes to this tax head.

Employee Shareholder Status (ESS)

The tax advantages linked to shares awarded under ESS will be abolished for arrangements entered into on, or after, 1 December 2016. The status itself will be closed to new arrangements at the next legislative opportunity.

HMRC says that this is in response to evidence suggesting that the status is primarily being used for tax planning instead of supporting a more flexible workforce. Note that ESS status is not available in Northern Ireland.

Offshore funds

UK taxpayers invested in offshore reporting funds pay tax on their share of a fund’s reportable income, and CGT on any gain on disposal of their shares or units.

Legislation will be introduced to ensure that performance fees incurred by such funds, and which are calculated by reference to any increase in the fund’s value, are not deductible against reportable income from April 2017 and instead reduce any tax payable on disposal gains.

Miscellany

Some other matters of interest announced were as follows:-

• From Royal Assent of the Finance Bill 2017–18, inheritance tax relief for donations to political parties will be extended to parties with representatives in the devolved legislatures, as well as parties that have acquired representatives through by-elections.
• As announced at Budget 2016, the government will give intermediaries a greater role in administering Gift Aid, simplifying the Gift Aid process for donors making digital donations.
• The fuel duty rate will remain frozen for the seventh successive year
• Company Car Tax bands and rates for 2020–21 – new, lower bands will be introduced for the lowest emitting cars. The appropriate percentage for cars emitting greater than 90g CO2/km will rise by 1 percentage point.
• The government will publish draft legislation for the Soft Drinks Industry Levy on 5 December
• The standard rate of IPT will rise to 12% from 1 June 2017.
• The government will consult on VAT grouping and provide funding with a view to digitising fully the Retail Export Scheme to reduce the administrative burden to travellers
• The government welcomes and has responded to the reviews the OTS has published this autumn, including on the alignment of income tax and NICs. The government has now asked the OTS to carry out reviews on aspects of the VAT system and on Stamp Duty on share transactions
• The government will legislate to provide HMRC with a right to close certain tax enquiries earlier
• A new 16.5% VAT flat rate will be introduced from 1 April 2017 for businesses with limited costs, such as many labour-only businesses. Guidance which has the force of law, published last week, will introduce anti-forestalling provisions.
• HMRC will develop its ability to identify emerging insolvency risk, using external analytical expertise
• The government will “clarify” the application of the VAT zero-rating for adapted motor vehicles

Conclusion

Our summary above has been focused mainly on the new tax announcements in the Autumn Statement. The figures and commentary in this article rely heavily on the official documents published.

All the relevant publications can be found on gov.uk on the Autumn Statement 2016 page. As usual, the devil is in the detail. Until we see the Finance Act 2017, proceed with tax caution. Draft clauses for Finance Bill 2017 were published earlier this month on 5 December.

Leontia Doran is UK Taxation Specialist for Chartered Accountants Ireland.

Email: leontia.doran@charteredaccountants.ie