The most significant announcement at last month’s Autumn Statement was possibly the announcement that this would be the last Autumn Statement.
Leading professionals have long made the case for a move to a single fiscal event and this was referenced by the Chancellor in the statement.
The Chancellor said: “This change will allow for greater parliamentary scrutiny of Budget measures ahead of their implementation. It is a long-overdue reform to our tax policy-making process and brings the UK into line with best practice recommended by the IMF, the Institute for Fiscal Studies, the Institute for Government and many others.”
Against a background of uncertainty over Brexit and the health of the UK economy, this move will be widely welcomed. An Autumn Budget will give businesses time to plan for the next financial year with certainty about the tax regime they will be dealing with. It should also mean fewer changes to manage, giving business owners more time to focus on running their businesses.
When the Institute for Fiscal Studies (IFS), the Chartered Institute of Taxation (CIOT) and the Institute for Government (IfG) wrote to Mr Hammond in September, Paul Johnson, the Director of the IFS said: “Nearly £4 in every £10 earned in the economy is taken in tax. How the tax system works matters enormously to us all.
“The current system for tax policy making is not fit for purpose. Too many changes are sprung on the country in too many fiscal events with too little sense of direction, consultation or evaluation.”
However, before saying goodbye to the Statement the Chancellor laid down a number of new measures that are likely to have a significant effect on businesses.
Ahead of the 2016 Autumn Statement there were rumours that the Chancellor Philip Hammond might limit the perks offered to employees by their employers.
However, it soon became clear that he was out to prevent any tax advantage from salary sacrifice schemes when he announced that from April 2017 any tax and employer national insurance contribution (NICs) advantages of such schemes would be abolished, with the exception of arrangements relating to pensions and pensions advice, childcare, Cycle to Work schemes and ultra-low emission vehicles (ULEVs).
This will mean that from April 2017 employees sacrificing part of their salary in return for benefits, such as gym membership, school fees or a work mobile phone, will pay the same amount of tax as those who buy them out of their post-tax income.
As a slight concession all arrangements in place before April 2017 will be protected until April 2018 and those currently in receipt of payments for school fees, accommodation or a car will be protected until April 2021.
The new rules will apply to all non-exempt salary sacrifice schemes even cases where an employer offers employees a choice between a benefit and a cash alternative, even if the benefit is not wanted.
The tax due will be based on the amount of the salary sacrificed or the cash alternative, where this is higher than the normal taxable benefit value.
Colin Tourick, professor of automotive management at the University of Buckingham business school, added: “People already sacrificing salary will continue to enjoy the benefits for four years. We can expect a huge rush in salary sacrifice registrations between now and 5 April, when the new rules come into force.”
During the last few Budgets and Autumn Statements the government has also made moves to prevent tax avoidance and evasion – and the latest fiscal event was no different.
In this year’s Autumn Statement the Chancellor Philip Hammond continued on with this theme announced a number of new measures to tackle businesses that avoid paying tax.
According to Mr Hammond’s new plans, the government will seek to raise an additional £2 billion of tax by 2022 through a range of new policies and rules.
Measures will include targeting incorporated operations and changing small business schemes to end any “inappropriate” use.
It comes after the Office for Budget Responsibility said the growing trend to incorporate businesses was expected to cost the treasury an additional £3 billion by 2021 than had been predicted during the spring Budget in March 2016.
During his speech the Chancellor also reaffirmed that the Treasury would press ahead in April 2017 with cuts to tax breaks for corporate debt and restrictions on loss relief. These are set to raise more than £5 billion from the largest businesses in the UK.
The move will essentially ensure that large businesses “pay tax in years where they make substantial profit”, as well as preventing tax avoidance through excessive borrowing in the UK to fund overseas activities.
Meanwhile, the move to reduce tax deductions for interest costs is likely to affect a large number of international businesses, particularly companies in the property and private equity sectors.
The government will also continue with its plans to tackle “enablers” of tax avoidance schemes that have been defeated in court with the introduction of tougher penalties.
The defence of having relied on advice – in cases where it was not independent – as taking “reasonable care” will be removed when considering penalties for users of avoidance schemes.
Disguised remuneration – where individuals benefit from using offshore trusts to avoid taxes on earnings – will also be tackled more harshly. This move is expected to raise more than £630 million for the Treasury by 2022.
A new tax charge will be created on historic loans drawn from disguised remuneration avoidance schemes that are not paid by April 2019.
The new rules will also deny tax relief on employers’ contributions to disguised remuneration schemes unless tax and National Insurance Contributions were paid within a period, which is yet to be specified.
The Chancellor concluded his speech on tax avoidance with the creation of a new legal requirement to correct past failures to pay UK tax on offshore holdings, which will force taxpayers with offshore interests to check that their filings in the UK are correct.
Link: Autumn Statement