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UK Autumn Statement: Osborne urged to focus on stability

03 December 2013

Matthew Gilleard

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The annual pre-Autumn Statement rumour mill for the UK has been churning furiously and issues such as avoidance, business rates, capital gains tax and employment taxes will all probably get at least a mention in Chancellor George Osborne’s speech. However, many advisers are expecting few changes and are hoping instead for stability and certainty to be the two overriding themes of the statement.

However, two items heavily tipped to feature are a freeze in business rates and higher taxes for the energy industry.

The oil industry already pays higher corporation taxes, and Osborne is likely to implement a similar regime for energy businesses. Richard Rose of BDO said this would combat the Labour Party’s call for a price freeze for energy costs, and would also prove popular with voters ahead of an election.

Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants (ACCA), said tax avoidance and tax evasion will be high on the agenda and we should expect to hear more from the Chancellor on his commitment to action on the international stage. He said the focus on avoidance and evasion is likely to be twofold.

"The aim is to tackle both the criminals who ignore the rules and the weaknesses in the current system which have given rise to so much comment and debate over the past year or two," said Roy-Chowdhury, who believes that on the whole the Autumn Statement will not bring anything new to the table but is more likely to reiterate the announcements of Budget 2013 in March, with a few additional extras.

Though avoidance announcements are unlikely to include unilateral UK action on the issue of taxing multinationals, there may well be further news on the UK tackling offshore evasion and non-compliance, particularly in the form of further automatic information exchange agreements being announced.

"The Chancellor may also make an announcement on how to tackle outstanding disputes on tax avoidance schemes where tax remains uncollected and thousands of cases are listed for Tribunal. The [UK Parliament’s] Public Accounts Committee has been very hot on this topic," said Rose.

Robert Gaut, tax partner at Fried, Frank, Harris, Shriver & Jacobson, agrees with Roy-Chowdhury that the December 5 announcement is unlikely to introduce rafts of new tax measures, though the Chancellor has surprised people on previous occasions – for example through the announcement of an additional percentage point corporate tax cut in the March 2011 Budget.

"I believe that any significant tax cuts are likely to be deferred to 2015. Although the economy seems to be improving, it is a weak recovery so far, and the Chancellor is likely to use any excess revenue to increase the rate of deficit reduction this year and next," said Gaut.

However, if comments made by Matthew Hancock MP in the past week are anything to go by, a corporate tax cut should not be ruled out.

"We have reduced corporation tax already and we are going to reduce it further," Hancock told the Daily Telegraph. "We should always be looking for what more we can do."

Roy-Chowdhury said what the ACCA really wants to see from the Autumn Statement is a coherent long-term tax strategy which encourages long-term investment by businesses and savings by individuals. He also wants to see moves forward through the work of the Office of Tax Simplification (OTS) on a streamlined and simpler tax regime.

Capital gains tax

Gaut is worried that rumoured changes to the levying of capital gains tax on non-resident individuals would be damaging for the UK’s reputation.

"Reported proposals to bring non-resident individuals within the charge of UK capital gains tax on real estate investment gains are troubling," said Gaut. "This would be a populist move, but one that would increase the perception among foreign investors that the UK tax environment cannot be trusted to remain stable."

Damian Bloom of Berwin Leighton Paisner (BLP) also warns against letting media pressure and political agendas influence tax policy, saying the tax regime should not become a "pre-election football".

"Media headlines increasingly backed up by ministerial quotes suggest capital gains tax on non-UK resident owners of UK real estate may be on the agenda," said Bloom. "We believe this policy could be misguided and badly timed."

Stability is vital

Michael Wistow, head of tax at BLP, reiterated his colleague’s point, saying clarity and stability in tax matters is one of the cornerstones of a healthy economy.

"But that is precisely what has been lacking for months now," he said, adding that this is being made worse by fundamental changes being rushed through without proper consultation. "Business confidence is starting to return but it should be bolstered by an Autumn Statement that provides reassurance and a strong message of stability and not hasty tax policy revisions made up on the hoof without a proper assessment of the consequences."

This is a common complaint from businesses and their advisers.

"This government promised to make stability and predictability in the tax system one of its main goals when it first came to power," said John Overs, head of the corporate tax team at BLP. "However, this is not what we have seen in recent months with multiple anti-avoidance rules piled up on top of the GAAR, originally hailed as the catch-all answer to piecemeal tax legislation."

And the property taxation issue referenced by Bloom and Gaut is one example of such a shifting of the goalposts. The rumours of CGT changes come less than a year after the new regime for taxation of high-value residential property came into effect.






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