Autumn Statement 2014 - Initial Reaction


With half an eye on the 2015 General Election, the statement included some unexpected announcements which are designed to benefit savers, hardworking families, homeowners and entrepreneurs.

George Osborne
Above: Chancellor George Osborne

As a North West business advisor, it is also pleasing to see that the Government is seeking to rebalance the economy and ensure strong regional growth by building a Northern Powerhouse.

Our initial analysis on the key measures that affect SMEs are listed below.  You can also read our initial comments here.

  • Stamp Duty: Stamp Duty on the acquisition of residential properties will be fundamentally changed as of midnight tonight. Instead of a single rate applying to the whole purchase price, stamp duty rates will only apply to... read more
  • Entrepreneurs Relief on Incorporation: With immediate effect the Government will prevent individuals from claiming entrepreneur’s relief (ER) on the disposals of goodwill when they transfer... read more
  • Entrepreneurs Relief and the Enterprise Investment Scheme: Under current rules individuals who realise a capital gain on any asset may defer paying tax if, within certain time limits...read more
  • R & D: Unexpectedly, but never the less gratefully received is the announcement to increase the R&D tax credits scheme so that qualifying SME companies can... read more
  • Tax Rates - General:  In terms of income tax rates the Chancellor announced that the personal allowance for 2015/16 (the amount of taxable income an individual can receive before theys tart to pay income tax) will be.... read more
  • Simplication of employee benefits and expenses: The Office of Tax Simplification has made a number of recommendations to the Government for the simplification of the tax system... read more
  • Business rates: Of all the taxes that businesses are subject to business rates are perhaps the most draconian. Following calls for... read more
  • Changes to Tax Rules for Non-Domiciled Individuals:  Individuals who are not domiciled in the UK are able to elect to pay tax on the remittance basis, so that... read more
  • VAT: The Chancellor has put an end to the disparity between VAT recovery for charitable hospices... read more
  • Pensions: As had previously been announced from April 2015, beneficiaries of individuals who die under the age of 75 with... read more

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  • Stamp Duty

Stamp Duty on the acquisition of residential properties will be fundamentally changed as of midnight tonight (3rd December 2014). Instead of a single rate applying to the whole purchase price, stamp duty rates will only apply to the part of the property price that falls within each band, in short the system will work in a similar way to income tax and makes it far more progressive. Previously the amount of Stamp Duty payable jumps at the threshold limits, this new system will stop this happening, and hopefully will aid individuals invest in residential property. Home buyers as well as residential property investors will see this as a welcome change.

In addition to this announcement in order to stimulate further investment in shared ownership, it will extend the scope of Stamp Duty Land Tax multiple dwellings relief so that “lease and leaseback” arrangements with housing associations on shared ownership properties also attract the relief.

  • Entrepreneurs Relief on Incorporation    

With immediate effect the Government will prevent individuals from claiming entrepreneur’s relief (ER) on the disposals of goodwill when they transfer the business to a related close company.  This measure will have a significant impact on tax driven incorporations whereby the consideration paid by the company for goodwill is left outstanding on director’s loan account.  Such a disposal would previously trigger a one-off capital gains tax charge at only 10% with the subsequent drawdown from the loan account being tax free i.e. a fiscal alchemy reducing the tax rate on future income streams from the company to 10%. Future capital gains on incorporation will now be subject to a tax rate of 28% which will greatly reduce the tax efficiency of this planning.

Furthermore, in a related measure, the company will no longer be able to claim a Corporation Tax deduction in respect of the purchase of the goodwill.

  • Entrepreneurs Relief (ER) and the Enterprise Investment Scheme

Under current rules individuals who realise a capital gain on any asset may defer paying tax if, within certain time limits, investments are made into trading companies qualifying under the Enterprise Investment Scheme (EIS). These deferred gains would come back into charge when the EIS shares are ultimately sold. It may be the case that the original gain on the disposal of the asset would have qualified for ER although when the deferred gain became chargeable the benefit of that ER would have been lost. The Government announced today that the deferred gain will now remain eligible for ER when realised at a later date. This will be a welcome change for business owners who realise capital gains, wish to invest in and help growing businesses, and at the same time ultimately secure ER on a deferred gain when they realise their investment in the EIS Company.

  • R&D

Unexpectedly, but never the less gratefully received, is the announcement to increase the R&D tax credits scheme so that qualifying SME companies can claim a tax deduction equal to 230% of their qualifying expenditure.  Furthermore, the Chancellor has also announced an increase in the rate of the Above The Line tax credit for large companies to 11%.

These announcements are a further enhancement to a tax relief that has been serially improved over recent years. Companies that habitually make R&D tax credits claims will see the tax relief and/or the tax credits they receive increased by these announcements. For those companies that do not make claims, it is a further prompt for them to consider doing so.  HMRC’s own figures still suggest that many qualifying companies are failing to take advantage of this relief, which in many instances can result in significant cash benefits.

  • Tax Rates – General

In terms of income tax rates the Chancellor announced that the personal allowance for 2015/16 (the amount of taxable income an individual can receive before they start to pay income tax) will be £10,600, an increase of £100 on the previously proposed allowance.

In an unexpected move the Chancellor also announced that the higher rate threshold (the amount an individual can earn before they start paying income tax at 40%) will increase from £41,865 currently to £42,385 during 2015/16.

 

2014-15

2015-16

 Personal Allowance (Expected)

£10,000

£10,600 (£10,500)

 Higher Rate Threshold

£41,865

£42,385

 

  • Simplification of employee benefits and expenses

The Office of Tax Simplification has made a number of recommendations to the Government for the simplification of the tax system, with a view to increasing the competitiveness of UK tax administration.  As a result of this report, the Government now intends to simplify the administration of employee benefits and expenses.  From April 2015 the Government will provide a statutory exemption for trivial benefits in kind, costing less than £50.  From April 2016, the Government will remove the £8,500 threshold below which employees do not pay income tax on certain benefits in kind, and replace it with new exemptions for carers and for minsters of religion.  It will also exempt certain reimbursed expenses, and introduce a statutory framework for voluntary payrolling.  The new exemption for reimbursed expenses will not be available if used in conjunction with a salary sacrifice. Other simplifications such as the rules concerning travel and subsistence and the operation of the Construction Industry Scheme (CIS) will follow.

  • Business Rates

Of all the taxes that businesses are subject to, business rates are perhaps the most draconian. Following calls for substantial changes to way business rates operate the Chancellor today announced support for small businesses by extending the doubling of Small Business Rate Relief to April 2016. According to Government figures approximately 385,000 of the smallest businesses will continue to receive 100% relief from business rates until April 2016, with around a further 190,000 benefiting from tapering relief.

In addition to this the Government has announced support for all businesses paying business rates by extending the 2% cap on the RPI increase in the business rates multiplier to April 2016.

Prior to the Autumn Statement there had been calls from many quarters for the Chancellor to address the imbalance that many high street retailers feel exists in the business rates system. In order to address this the Chancellor announced support for the retail sector by increasing the £1,000 business rates discount for shops, pubs, cafes and restaurants with a rateable value of £50,000 or below, to £1,500 in 2015-16. According to the Government this will benefit an estimated 300,000 properties.

  • Changes to the Tax Rules for Non-domiciled Individuals

Individuals who are not domiciled in the UK are able to elect to pay tax on the remittance basis, so that any income and gains they hold offshore are only taxable as and when they are brought to the UK.  In order to benefit from this treatment, the individuals concerned must pay an annual charge which amounts to £30,000 for those people who have been UK resident for 7 out of the last 9 years.  It is understood that the level of charge in this category will not change.  The Government has however, announced that they will increase the charge for non-domiciles who have been resident in the UK for 12 of the past 14 years from £50,000 to £60,000.  Furthermore, there will be the introduction of a new charging point for those who have been resident for 17 of the past 20 years which will amount to £90,000.  The Government will also consult on making the election to pay the remittance basis charge apply for a minimum of three years so that non-domiciles are not easily able to arrange their tax affairs so as to only pay the charges occasionally.  Clearly these measures are a further attack on the beneficial tax status that non-domiciles have enjoyed in the past.

  • VAT

The Chancellor has put an end to the disparity between VAT recovery for charitable hospices when compared with the NHS. It is widely acknowledged that these institutions provide vital services within the community and these changes will be a welcome relief from the VAT burden they currently suffer. We are expecting further details on how this will work in due course.

  • Pensions

As had previously been announced, from April 2015, beneficiaries of individuals who die under the age of 75 with remaining uncrystallised or drawdown defined contribution pension funds, or with a joint life or guaranteed term annuity, will be able to receive any future payments from such policies tax free where no payments have been made to the beneficiary before 6 April 2015. The tax rules will also be changed to allow joint life annuities to be paid to any beneficiary. Where the individual was over 75, the beneficiary will pay the marginal rate of Income Tax, or 45% if the funds are taken as a lump sum payment. Lump sum payments will be charged at the beneficiary’s marginal rate from 2016-17.

In addition to the expected changes, the Chancellor also announced that from April 2015, beneficiaries of individuals who die under the age of 75 with a joint life or guaranteed term annuity will be able to receive any future payments from such policies tax free. The tax rules will also be changed to allow joint life annuities to be passed on to any beneficiary.

Initial Comments:

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Tim Adcock

Tim Adcock
Tax Partner

"Stamp Duty on the acquisition of residential properties will be fundamentally changed as of midnight tonight. Instead of a single rate applying to the whole purchase price, stamp duty rates will only apply to the part of the property price that falls within each band, in short the system will work in a similar way to income tax and makes it far more progressive. Previously the amount of Stamp Duty payable jumps at the threshold limits, this new system will stop this happening, and hopefully will aid individuals invest in residential property. Home buyers as well as residential property investors will see this as a welcome change".

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Gemma Gower

Gemma McCaldon-Gower
VAT Manager 
        

"The Chancellor has put an end to the disparity between VAT recovery for charitable hospices when compared with the NHS. It is widely acknowledged that these institutions provide vital services within the community and these changes will be a welcome relief from the VAT burden they currently suffer".

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Graeme Davies

Graeme Davies
Tax Manager
         

"Unexpectedly, but never the less gratefully received is the announcement to increase R&D tax credits for SMEs to 230% of qualifying expenditure and the above the line tax credit for large companies to 11%. This announcement makes these reliefs even more generous and gives limited companies greater reason to consider whether or not they qualify. HMRC’s own figures still suggest that many qualifying companies are still failing to take advantage of this relief, which in many instances can result in significant cash benefits to limited companies".

 

 

 

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