2015 Autumn Statement - Our Initial Reaction


Mitchell Charlesworth tax partner Tim Adcock said Chancellor George Osborne’s Autumn Statement focused on efficiencies, welfare, education, infrastructure and security but less on how income will be raised.

Autumn Leaves Web 

The Autumn Statement and Spending Review was thankfully relatively light on drastic tax legislation announcements compared to the March and summer Budgets, however, the devil will always be in the detail.

“At this stage it appears the key announcements for our clients will be the change to the Capital Gains Tax due date on the sale of residential property to 30 days, the additional SDLT on buy to let for second homes and the half a per cent increase to the Apprenticeship Levy.

“Sixth Form colleges will welcome the opportunity to become Academies, which will allow them to recover all the VAT they incur, and women’s charities will benefit from the £15m raised on the ‘tampon tax’.”

Corporate Finance Partner, Brian McCann who earlier today chaired a meeting of entrepreneurs and professionals at Liverpool & Sefton Chamber of Commerce in Liverpool city centre to watch the Chancellor deliver his speech to the House of Commons.added:

“Many of our clients will welcome the extension to small business rates relief and the commitment to additional spending on nursery care. However, on many of the other announcements we will need to see the detail to understand the level of benefit to businesses in the North West. These announcements include proposed additional spending on transport infrastructure and the sciences as well as steps to reduce the impact of PI claims on car insurance premiums.

Further exploration of today's accouncements can be read below:

 

Funding Womens Support Charities:
Although the Chancellor refused to reduce the so called “tampon tax” from its current VAT rate of 5%, he has promised that all of the receipts from the tax in this parliament are to be ploughed into women’s health and support charities, including domestic abuse refuges.  The Chancellor went on to say that the Government will continue to lobby the EU to allow zero-rating of women’s sanitary products.
 
VAT Opportunity for Sixth Form Colleges:
In a welcome announcement for the North West’s 56 Sixth Form colleges, the Chancellor also announced that Sixth Form Colleges in England will be given the opportunity to become academies, allowing for VAT recovery in line with other educational establishments.  Colleges with an appetite to convert should seek advice and get their VAT affairs in order in preparation.

Reduced Rate VAT on Energy Saving Materials:
We also received confirmation that the government will consult changes to legislation on the VAT reduced rate for energy saving materials, following the UKs defeat by the European Union.  Following consultation, the Government will legislate in Finance Bill 2016 bringing the UK in line with EU on this area of contention.

Stamp Duty Land Tax and Buy to Let Properties/Second Homes:
In a surprise move the chancellor announced that from 1 April 2016 higher rates of Stamp Duty Land Tax (SDLT) will be charged on purchases of “additional” properties. This charge is targeted at Buy to Let Properties and Second Homes. This higher rate will be 3% above the current SDLT rates.

Whilst further policy details are awaited, it is envisaged that caravans, mobile homes and houseboats will be exempted, as will corporates or funds making a significant contribution to the governments housing agenda. It is also a possibility that corporates or funds owning more than 15 residential properties could be exempted.

Capital Gains Tax - Residential Properties:
Coupled with the changes to Stamp Duty Land Tax on the acquisition of “additional” properties, the proposed changes to capital gains tax (“CGT”) in relation to residential properties is clearly an attack on those who either own a second home, or use residential properties as investments.

Today’s statement included a proposal that from April 2019, taxpayers who dispose of a residential property and realise a gain on which CGT is payable, will be expected to make a payment on account within 30 days of the completion of the disposal. Currently any CGT liability would be payable between 10 and 22 months after the disposal, depending on the date of disposal. This therefore results in an acceleration of HMRC receiving the tax due.

We are expecting further detail on this change via a government consultation, however, it has been made clear that this will not effect the disposal of properties fully exempt from CGT as a result of the availability of Private Residence Relief.

Apprenticeship Levy:
In what will surely be seen as tax charge on employing staff, the government have confirmed plans to introduce an “Apprenticeship Levy” in April 2017.

It is currently proposed that the rate of this levy will be 0.5% of the employer’s paybill, with the amount being paid to HMRC through PAYE.

Thankfully, in order to reduce the effect of this on small businesses, each employer will receive an allowance of £15,000 which they can offset against their liability under this levy. This means that the charge will only be payable where the employer’s paybill exceeds £3m.

Company Distributions – Anti-avoidance:
You may be sick of hearing tax advisers say the devil is in the detail immediately following Budgets and Autumn Statements, however, we remain unapologetic about saying it because it’s true!

In his speech the Chancellor made no mention of this, but hidden within the policy documents there is the following nugget:

The government will publish a consultation on the rules concerning distributions later in the year. The government will also amend the Transactions in Securities rules and introduce a Targeted Anti-Avoidance Rule in order to prevent opportunities for income to be converted to capital in order to gain a tax advantage.

The exact target of the above is yet to be revealed, however, we suspect that this may be aimed at planning which involves a capital distribution following a share capital reduction within the company. In addition to this (or instead of) it could be an attack on part disposals of shareholdings where the vendor(s) retain an interest in the company post disposal.

We await the consultation with anticipation as although the policy statement may seem an innocuous sentence, it could have far reaching implications for shareholders In SME companies.

Making Tax Digital:
Since it became apparent that the government is intent on making tax compliance as automated and digital as possible, there has been much conjecture within the profession as to how this will happen and what a digitalised tax compliance regime might look like. In today’s Autumn Statement we got a bit more of a glimpse into the future. As part of the drive towards personalised digital accounts, removing the need for annual returns, and real time tax compliance the government today announced it will:

  • Invest £1.3 billion in HMRC in an attempt to turn it into “one of the most digitally advanced tax administrations in the world, with access to digital tax accounts for all small businesses and individuals by 2016-17
  • By 2020, require most businesses, self-employed people and landlords to keep track of their tax affairs digitally and update HMRC at least quarterly via their digital tax account. HMRC will ensure the availability of free apps and software that link securely to HMRC systems and provide support to those who need help using digital technology. This will not apply to individuals in employment or pensioners, unless they have secondary incomes of more than £10,000 per year from self-employment or property. The government will consult on the details in 2016
  • Consult on options to simplify the payment of taxes, including whether to align payment dates and bring them closer to the point when profits arise, so that taxpayers make a single regular payment that covers all their tax affairs

The government’s position is that “These reforms will deliver the biggest transformation of the tax system in a generation, making it more effective, efficient and easier for taxpayers, and are a first step by HMRC towards meeting a new target to reduce the costs to business of tax administration by £400 million by the end of 2019-20”.

The announcement that the aim is to require businesses, self employed and landlords to update HMRC at least quarterly suggests a far reaching “real time” based compliance system that will require the co-operation of HMRC, software providers, taxpayers and their advisers/accountants.

The development of this new system will be a significant transformation and we will be monitoring future developments very closely.

How will the measures be funded?
At first glance there is little to confirm how all the measures will be funded apart from more austerity measures in the public sector.  However, the key piece of legislation which will provide substantial income to Government is the change to stamp duty.

A total of £1bn will be raised by 2021 due to the change in stamp duty. Those property owners who buy to let properties or those who wish to purchase a second home will have a 3 per cent surcharge on stamp duty from April 2016.

For example, the average property price is £184,000, meaning the change in Stamp Duty will add a further £5,520 of tax.

In 2014, this change would have affected 160,000 house buyers, around 13 per cent of the total buy to let market. It is likely that this will hit the sector hard.

This is the second big change to stamp duty, after reforms announced a year ago which affected the higher end of the property market.

If any of the issues discussed in today's Autumn Statement affect you or your business, and you would like further information or advice, then please do not hesitate to contact a member of our Tax Team who will gladly assist you.

You may also wish to read the latest copy of 'Talking Tax', our quarterly tax publication which can be found here.

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