Partner Article

Grant Thornton on the Statement fallout

Andrew Westhead, partner in tax for business and financial adviser at Grant Thornton in the North East, shares his views on what the Autumn Statement will mean for businesses.

Business tax

Against expectations the Chancellor managed to find a small sticking plaster to help with ‘healing’ the economy by finding enough money to accelerate the cut in the mainstream rate of corporation tax. From April next year the rate falls as predicted to 23% but the following year it will fall by an extra 1% over what was expected, to 21%. This makes the UK one of the most competitive corporate tax rate jurisdictions in Europe. However, the Chancellor didn’t go as far as merging the small corporate tax rate (20%) with the mainstream rate and that may be one for the future. If he does go down this route, it will provide simplification as well as a competitive framework.

The annual investment allowance, which had been slashed from £100,000 to £25,000 during the course of this Parliament, is to rise again like a phoenix from the ashes. From 1 January 2013, it will be £250,000 for at least two years. The intention is to allow the small and medium sized enterprises (SMEs) to benefit from enhanced tax breaks for expenditure on plant and machinery. However the reality is that very few businesses ever need this level of capital expenditure and for small businesses in particular it is a pipedream. Therefore, although enticing on paper, in reality it is likely to be of limited use.

Avoidance

As expected a range of measures were introduced to crackdown on aggressive tax planning. These include confirmation that from next April there will be a General Anti-Abuse Rule (GAAR) in the UK as a net to capture those schemes which are deemed to be abusive of the UK tax system. An interim panel will be setting the guidance, and the legislation will appear next week. Although not retrospective, it is important for anyone undertaking a transaction that spans into next April to be aware of the GAAR in case it impacts on elements of the transaction arising after April 2013.

In addition, four very specific planning schemes have been stopped with immediate effect. These appear to have arisen from known schemes disclosed to HMRC or those it has become aware of recently.

The Chancellor also confirmed the expansion of the HMRC Affluent Unit, which will now include taxpayers with a net worth of £1 million or more. Particular mention was made about a new crackdown on inheritance tax (IHT) evasion using offshore structures and bank accounts. Additionally, the government will develop and publish its approach to countering offshore tax evasion by spring 2013.

Pensions

The annual allowance for pensions is to be reduced from £50,000 per annum to £40,000 from April 2014, giving taxpayers some time to consider maximising their pension contributions. This change has been framed as hitting the wealthy only but it could affect many in the public sector pension scheme or defined benefit schemes in general. It will also impact many middle-aged, middle earners who can only effectively save for retirement in their later years.

Allowances and thresholds

There’s to be a glacial uplift in most of the well-known allowances and thresholds over the next two years. This is not linked to inflation but is broadly a 1% increase. The good news is that these items have not been frozen. The bad news is that there will not be a significant uplift except for the personal allowance, which is being increased from next April (by £235 to £9,440), and is on target to hit the hallowed £10,000 before the end of this Parliament as promised.

Shares in return for employment rights

The Government’s paper responding to the recent consultation on shares for giving up employment rights indicates that of the 209 responses only three respondents indicated that they were likely to adopt the new proposals. Despite, this and other wide spread criticisms of the proposal, the draft legislation will go ahead. Amendments are being introduced to try and simplify valuation issues, ensure that the shares can be delivered cost free and reduce the tax exposure. The message must surely be that these proposals need working up in significantly more detail if they are to have any chance of being viable.“

Government listens on controlled persons

HMRC has decided not to go ahead with the changes in the taxation of ‘controlling persons’, which it had been consulting on this summer. In our response Grant Thornton suggested that the proposals were unworkable and unnecessary, as HMRC had sufficient powers under existing legislation to review any situation which caused concern, as long as existing guidance was strengthened. HMRC’s position now accords with our view. This is a welcome and practical announcement.

Property

The real estate sector does not appear to have borne the brunt of the Chancellor’s focus this time round; plus it seems that the Chancellor is continuing to help support the UK construction sector via the government’s investment into infrastructure projects. That said, we’re awaiting the draft legislation next week that will impact the residential sector. It will be interesting to see whether the annual charge and the extension of capital gains tax to non-residents will be included. Aside from the significant increase in Stamp Duty Land Tax on high end residential property, it is not clear whether his reference to “not introducing a new tax on property” means that he has dropped the annual charge and capital gains tax charge proposals, or whether this was merely reference to a new mansion tax, which is definitely not on the table.

The main changes that will impact the sector are the relief from empty property business rates for developers (to cover new commercial buildings completed from 1 October 2013 to 30 September 2016, albeit this will be subject to consultation and state aids limit) and also the increase in the Annual Investment Allowance mentioned earlier.

This was posted in Bdaily's Members' News section by Grant Thornton .