“While there were no big surprises, the headlines from the Autumn Statement contained some good, less good and bad news from the government,” said Dominic Stuttaford, head of tax for Europe, Middle East, Asia and Brazil at global law firm Norton Rose Fulbright.
In his first fiscal statement as Chancellor, one piece of bad news announced was an increase to the insurance premium taxes from 10% to 12% from June 2017 to meet spending commitments. Next year’s rise means the rate would have doubled in the past two years, Stuttaford noted.
However, the Autumn Statement was not all grim news. Hammond confirmed that the government will continue with the Business Tax Roadmap, which was announced by his predecessor, and would lower the corporate tax rate to 17% by 2020.
“The less good news for many will be the confirmation that the restrictions on relief for interest and the changes to the loss rules are going ahead,” Stuttaford added. “These have been the subject of much comment over the last few months and it will be interesting to see the extent to which HMRC has taken account of the representation made. Many had asked for the changes to be delayed.”
Hammond also announced measures to tackle tax avoidance and evasion, proposals to boost research and development (R&D), innovation and infrastructure, as well as a host of employment tax measures.
However, the budget did not contain any proposals to simplify the tax regime. “Taxpayers hoping to see a focus on simplification in Hammond’s inaugural speech are likely to be disappointed at the lack of meaningful action to reduce the compliance burden,” said Laurence Field, head of tax at Crowe Clark Whitehill. “For a budget focused on improving productivity, simplifying the tax legislation would have been a nice statement of intent to business. The UK tax code stands at more than 17,000 pages. People want simplicity and fairness and the lack of resources being devoted to this is disappointing. The announcements on business rates relief and confirmation of the already-announced corporation tax rate reduction are welcome but the government could have gone further.”
Jonathan Riley, head of tax at Grant Thornton agreed with Field, describing the budget as a "missed opportunity" to make big changes. "The UK has one of the most complex tax regimes in the world. As found by Grant Thornton research, companies are willing to pay at least the same amount of tax in return for stability and certainty. But the tinkering will continue rather than the use of an opportunity for a root and branch review so we have a tax regime fit for a digital age, one that helps build a vibrant economy."
Continued commitments for businesses
“My priority as Chancellor is to ensure that Britain remains the number one destination for business – creating the investment, the jobs and the prosperity to protect our long-term future. I know how much business values certainty and stability, and so I confirm today that we will stick to the business tax roadmap we set out in March,” Hammond said.
The Chancellor added that the government would implement new restrictions on tax relief for corporate interest expenses, and reform the way that relief is provided for historic losses, as announced in March this year. The change will apply from April 2017 and intends to ensure that large businesses pay tax in years where they make substantial profits. The changes will also mean that "businesses cannot avoid tax by borrowing excessively in the UK to fund their overseas activities”, Hammond said. The measure will affect the UK’s largest businesses.
“The decision to go ahead with limiting tax relief for historic losses is disappointing, particularly with the UK looking an uncertain destination for investment following the Brexit vote,” said Jonathan Hornby, managing director at Taxand, Alvarez & Marsal. “Businesses have long been able to claim tax relief without restriction for losses incurred in earlier years. Limiting the relief to 50% of profits for any particular year is unfair on businesses that would have expected to offset costs incurred during the investment stage of their business plans, or in the more difficult years of recession. The policy could have a materially detrimental effect on business investment and the overall economy.”
Furthermore, Hornby added that the government’s decision to restrict the tax relief for borrowing costs will, in many cases, lead to a significant rise in effective tax rates. “The UK’s attractiveness as a location for foreign investment is already suffering as a result of Brexit and given that these measures further damage our competitiveness we would have preferred to see them deferred until the dust has settled.”
The government will also continue to deliver on its BEPS commitments and will include the following measures in the Finance Bill 2017:
- Add specific provisions to amend the patent box rules, covering cases where R&D is undertaken collaboratively by two or more companies under a ‘cost sharing arrangement’. The provisions will ensure that such companies are neither penalised nor able to gain an advantage under these rules by organising their R&D in this way. The measure will apply to accounting periods commencing on or after April 1 2017;
- Clarify the rules on capital allowances, chargeable gains and investments by co-ownership authorised contractual schemes (CoACS) in offshore funds, as well as information requirements on the operators of CoACS. The measure intends to reduce tax complexity for investors in CoACS; and
- Amend the hybrid mismatch so the rules work as intended. The changes will apply from January 1 2017.
- Tax measures promised to the oil and gas sector;
- Implementing the business rates reduction package;
- Lowering the transitional relief cap from 45% to 43% in 2017, and from 50% to 32% the year after; and
- Increasing the rural rate relief to 100%, giving small businesses in rural areas a tax break worth up to £2,900 ($3,600) per year.
Tax avoidance and evasion
Measures against tax avoidance and evasion will also continue.
On VAT avoidance, legislation will be introduced in the Finance Bill 2017 to strengthen the tax avoidance disclosure regimes for indirect taxes. “Provision will be made to make scheme promoters primarily responsible for disclosing schemes to HMRC and the scope of the regime will be extended to include all indirect taxes,” a document accompanying the statement said. The measure will have effect from September 1 2017.
Furthermore, those participating in VAT fraud will face higher penalties. The Finance Bill 2017 will include new and more effective penalties that will be applied to businesses and company officers when they know or should have known that their transactions were connected with VAT fraud. Following a consultation earlier this year, the government has decided to introduce be a fixed rate penalty of 30% after the bill receives Royal Assent. Before the budget, RSM said that a new penalty regime “will enable HMRC to issue a penalty at the same time that its principle decision has been made (rather than awaiting the findings of a tribunal) and will not distinguish between whether a business or individual ‘knew, or should have known, of the connection with VAT fraud’”.
Separately, the inspection powers of customs and excise officers will be extended to allow them to examine goods away from approved premises such as airports and ports, and to search goods liable for forfeiture and open or unpack any container.
Autumn Statement to be abolished
Although this was Hammond’s first budget speech as Chancellor, it will be his last Autumn Statement, he said.
A key announcement that many have welcomed is the abolishment of the Autumn Statement to stop the government announcing two big budget statements each year, which in turn mean numerous proposals.
“No other major economy makes hundreds of tax changes twice a year, and neither should we,” Hammond said. “This change will also allow for greater parliamentary scrutiny of budget measures ahead of their implementation.”
“The theme that Britain is an open, stable place to do business was reinforced by the move to an Autumn Budget (to allow time for scrutiny of legislation before it becomes effective in April each year),” said Rachel Taylor, associate at national law firm Bond Dickinson.
The change will mean that the 2017 spring budget in March will be the final spring Budget. From autumn 2017, the UK will have an autumn budget, announcing tax changes well in advance of the start of the tax year. From 2018 there will be a Spring Statement, responding to the forecast from the Office of Budget Responsibility, but it will not be the major fiscal event that it is today.
“This is a long-overdue reform to our tax-policy making process and brings the UK into line with best practice recommended by the IMF, IFS, Institute for Government and many others,” Hammond said.
However, the change was undermined by Hammond saying that if unexpected changes in the economy require it, then he would announce actions at the Spring Statement, but he stressed that he would not “make significant changes twice a year just for the sake of it”.
“The announcement that there will be only one budget in the autumn of each year could go a long way to simplifying our taxes,” said Jane MacKay, corporate business partner at Crowe Clark Whitehill. “The commitment to one set of changes in tax rules in any year should give taxpayers far more certainty about the rules that affect them and their decisions. It also means that there will be time for parliament to properly scrutinise each draft Finance Bill before it is enacted: this should avoid some of the hastily made, badly drafted and hastily unravelled changes we’ve seen over recent years.”
However, Grant Thornton's Jonathan Riley was not impressed by this announcement. “One thing the Chancellor may as well have done is abolish Christmas for many in the tax profession. A change to a full Budget in the Autumn will mean much poring over legislation over the festive break. Happy Christmas!”
More to follow…
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