AUTUMN STATEMENT 2016 PREDICTIONS

Transcription

1 AUTUMN STATEMENT 2016 PREDICTIONS

2 AUTUMN STATEMENT 2016 PREDICTIONS Budget 2016 may have been only eight months ago, but the world now looks a very different place. When the Chancellor gets to his feet on Wednesday 23rd November, everybody will be hoping for messages of calm control, a clear plan in uncertain times and a sense of purpose and direction. Amid speculation that this will be the last Autumn Statement in the format we have come to expect, we can be sure that there will be new policies to be pored over, new measures to be scrutinised and masses of detail to be analysed. So what can we expect? Read below for RSM s considered predictions for Autumn Statement What we are confident will be announced Corporate tax Restrictions on the deductibility of corporate interest expense an announcement of the final shape of the new regime (or that it will be deferred for a year or two) will be made following consultation during the summer. Reform of corporate loss relief rules an announcement on the final shape of the proposed new regime for corporate tax losses will be made following consultation during the summer. Tax relief for temporary and touring exhibitions at museums and art galleries a new tax relief will be introduced following consultation during the summer. Initial proposals for reform of the substantial shareholdings exemption following consultation during the summer, draft legislation is likely to be published for further consultation. Secondary transfer pricing tax adjustments a system for secondary adjustments to apply to the UK s transfer pricing regime is likely to be introduced following consultation during the summer. Employer taxation Alignment of dates by which an employee has to make good the cost of their benefit-in-kind to reduce their tax liability draft legislation is expected for this measure that was consulted on during the summer. Salary sacrifice for the provision of benefits in kind draft legislation is expected for this measure that was consulted on during the summer, but it is possible minor changes to the proposals will be announced. Company car tax changes changes to the CO2 emissions bands for ultra-low emission vehicles (below 75 grams of CO2 per kilometre) are expected to be included in the draft Finance Bill. Changes to the rules for off-payroll working in the public sector - changes requiring tax to be deducted by the public sector body or an intermediary entity in such arrangements are expected to be included in the draft Finance Bill. Tightened rules on the taxation of termination payments including legislation to clarify that all payments in lieu of notice and certain damages payments are taxable as earnings and removing foreign service relief are expected to be included in the draft Finance Bill. Simplification of the process for applying for and agreeing PAYE settlement arrangements (PSAs) following consultation over the summer, measures to simplify the administration of PSAs are expected to be included in the draft Finance Bill. Private client Reforms to the taxation of non-domiciles following consultation, reforms to the taxation of non-domiciles are expected to be confirmed. It is possible an announcement may be made to delay the existing proposals for 12 months, but this appears unlikely. There is a very short timescale for implementation of any necessary tax planning by 6 April 2017 and given feedback to the recent consultation, it is also possible that there will be further consultation on amended measures this could be a way for the Government to save face but still delay the introduction of the new rules until say 6 April 2018, but is unlikely. Pensions advice allowance an allowance for people to withdraw 500 tax free, before the age of 55, from their defined contribution pension to redeem against the cost of financial advice is expected to be included in the draft Finance Bill. Removal of the requirement to deduct income tax at source - the requirement to deduct tax from interest distributions from various entity types including open-ended investment companies, authorised unit trusts and investment trust companies, and from interest on peer to peer loans is expected to be included in the draft Finance Bill. Changes to the taxation of partnerships following recent consultation, it is expected that an announcement will be made, but this is likely to be of further consultation. Introduction of new allowances - a 1000 allowance for property income and a 1000 allowance for trading income are expected to be included in the draft Finance Bill. 2

3 Changes to the current tax rules for part surrenders and part assignments of life insurance policies changes to prevent excessive tax charges arising on these products are expected to be included in the draft Finance Bill. Changes to the property categories for personal portfolio bonds - changes to the taxation of life insurance policies (personal portfolio bonds) are expected to be included in the draft Finance Bill. Measures to streamline the tax rules for investors in authorised contractual schemes such measures are likely to be included in the draft Finance Bill, or else for consultation. Simplifying tax for unincorporated businesses and introduction of the cash basis for unincorporated property businesses - following consultation during the summer and autumn, an announcement is likely on these proposals that will support the Government s making tax digital agenda. Alignment of income tax and national insurance contributions following the Office of Tax Simplification s first report, a further report is likely to be published alongside a possible formal consultation. Removal of the legislative requirement that stakeholder child trust funds must be subject to lifestyling legislation expected to be included in the draft Finance Bill. Tax administration Making tax digital following significant consultation during the summer and autumn, an announcement is likely on these proposals, although this may be that full implementation of the proposals will be delayed to ensure smooth and effective implementation. Measures to tackle disguised remuneration - measure to tackle disguised remuneration, typically by using employment benefit trusts, are expected to be included in the draft Finance Bill. VAT Extension of VAT grouping eligibility provisions Following recent EU court decisions, eligibility to be included in VAT groups may be extended to include, for example, partnerships. Policy changes to VAT recovery by holding companies that are members of VAT groups Following recent EU and UK court decisions, policy changes are expected relating to VAT recovery by holding companies. Amendment to place of supply for services relating to immovable property Under EU rules, the place of supply of services relating to immovable property will, from 1 January 2017, be where the property is situated. The Government will therefore need to adapt existing UK legislation where appropriate. Strengthening the VAT disclosure of tax avoidance schemes rules Following the issue of the consultation (Strengthening the Tax Avoidance Disclosure Regimes for Indirect Taxes and Inheritance Tax), the VAT disclosure regime (VADR) is likely to be completely redrafted to more closely align the VADR with the direct tax disclosure of tax avoidance schemes (DOTAS) rules for direct taxes. Primary changes are likely to include: a re-design of the regime to operate on a promoter basis, whereby the requirement to disclose schemes and provide further and ongoing information would fall on promoters rather than as currently, users of listed or hallmarked schemes; the removal of listed schemes; the replacement of the current VADR purpose test with the DOTAS benefit test; the removal of the turnover threshold currently applicable to listed and hallmarked schemes; the inclusion of non-taxable (non-business / exempt) persons in VADR; the removal of existing VADR penalties and imposition of penalties in line with those applicable in DOTAS; updates and refinements to the existing VADR hallmarks ; and the inclusion of gambling duties, insurance premium tax (IPT), landfill tax, climate change levy (CCL), aggregates levy and all excise duties and customs duties within VADR. New penalties for participating in VAT fraud - a new penalty regime for participating in VAT fraud will be introduced. The 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. What we might reasonably expect to be announced Private client Changes to the taxation of unfunded employer financed retirement benefit schemes (unfunded EFRBS) a major review or minor changes might be announced. Changes to the taxation of pensions a major review or minor changes might be announced. Abolition of class 2 national insurance contributions (NICs) abolition of class 2 NICs might be announced and included in the draft Finance Bill. Changes to the double taxation treaty passport scheme changes, including proposals included extending scheme to partnerships, might reasonably be included in the draft Finance Bill. 3

4 Changes to the taxation of landlords recent legislated changes to the taxation of landlords, restricting tax relief for finance costs, that are yet to have effect, may be partially reversed. Sole Enterprise Protected Assets (SEPA) business model a consultation on the taxation of this business model may be announced following a review by the Office of Tax Simplification. Tax administration Requirement to correct offshore taxation matters - the nature of the proposed regime, consulted on during the summer, requiring taxpayers to correct offshore tax irregularities, is likely to be announced. New measures and powers to enable HMRC to tackle the hidden economy following consultation during the summer, an announcement of measures to tackle the hidden economy might reasonably be made. VAT Change of VAT treatment for private use of leased cars the announcement that the EU derogation authorising the UK to apply a 50 per cent input tax restriction on charges incurred for the hire or lease of a car has been extended to 31 December The extension of the derogation restricting input tax recovery also removes the need for the hirer/lessee to keep records of the private mileage travelled in business cars, and to account for VAT on any employee contribution or salary sacrifice for the private use of each car. However, we expect the Treatment of Transactions Order (SI1993/630) to be rescinded meaning that, where VAT on a leased vehicle has been recovered in full, any contributions by an employee, including salary sacrifices, will be liable to VAT. This measure will primarily impact NHS bodies as, under the Contracted-out Services Provisions, NHS bodies have been afforded full VAT recovery on leased cars but, under the Treatment of Transactions Order, have not been required to account for output tax on employee contributions or salary sacrifice for the private use. Wider application of the VAT exemption for providers of welfare services the current VAT legislation (in item 9 to group 7 of Schedule 9 to VATA 1994) affords VAT exemptions to suppliers which are either: a local authority; registered as a charity; or registered under the Care Act (or similar). A VAT tribunal has found that this domestic construction of European VAT law breaches the principal of fiscal neutrality and that the test of charity in UK VAT legislation should be replaced by the term body devoted to social welfare. An amendment to the VAT legislation as envisaged would allow for profit commercial providers of welfare services to treat their supplies as exempt from VAT. Reduced VAT rates for e-books and e-publications - the European Commission is tasked, under the EU Action Plan on VAT, to make a legislative proposal to allow member states to apply the same VAT rates to both printed publications and to electronically supplied publications. The UK may pre-empt the Commission s proposals by announcing that e-books and e-publications will be afforded VAT zero-rating (or at worst, VAT reduced-rating). VAT zero-rating for women s sanitary products old news but, there has not yet been a confirmed date of when VAT at the zero-rate can be applied to women s sanitary products, merely that the commencement date must not be after the later of 1 April 2017 and the earliest date that may be appointed consistently with the United Kingdom s EU obligations. Removal of low value consignment Relief (LVCR) - Since April 2012, LVCR no longer applies to any goods imported from the Channel Islands; however, the UK may extend this to other territories as, under the EU Action Plan, the European Commission proposes to remove LVCR for the import of small consignment from suppliers in third countries, with VAT on imports of small consignments being, in the main, collected through the proposed extension of the VAT mini-one stop shop (MOSS). Input tax recovery for charities in receipt of subsidies and grants - Formal consultation may be announced on the right to input VAT recovery by charities in receipt of subsidies and grants. Amended criteria for investment management and related services Following EU case law, the Government may wish to establish clear criteria for determining whether there are separate VATable and exempt supplies of investment management and related services, particularly with regard to discretionary investment management and portfolio management arrangements. Narrowing the extent of VAT exempt insurance intermediary services On the basis that current UK legislation is too broad an interpretation of EU law and that the EU court has stated the defining features of being an insurance broker or agent for VAT exemption purposes, UK legislation may be brought into line with these principles. What is possible but less likely Corporate tax Reduction in the rate of corporation tax rate a pledge to reduce the rate of corporation tax, in line with George Osborne s earlier suggestions, bringing the rate to below 15 per cent by 2020 is possible. 4

5 Changes to capital allowances rates or the annual investment allowance the announcement of further changes to capital allowances rules to encourage more capital investment is possible. Tax relief for the costs of raising equity on the basis of an imputed interest charge such a change, to level the tax playing field between debt and equity funding, is a long-term possibility that may be announced at any time. Private client Changes to the proposals for the taxation of offshore trusts an announcement that proposed changes to the taxation of offshore trusts (included in the non-domiciles consultation during the summer) will be relaxed, is possible. Amendments to entrepreneurs relief changes to relax the 5 per cent holding requirement for long term employees so that they may claim entrepreneurs relief are possible. Tax administration New targeted anti-avoidance measures and other changes in response to schemes disclosed to HMRC it is always possible that additional targeted anti-voidance measures will be announced as a result of disclosures under the disclosure of tax avoidance schemes (DOTAS) rules. Extension of VAT reduced rates - EU VAT legislation allows member states to apply a reduced rate of VAT to, among others, repairs and renovations of social and private housing; restaurant and catering services; hotel accommodation; and, admission to fairs, amusement parks, theatres, shows and other cultural events the UK doesn t as yet, despite intense lobbying. Application of VAT to energy-saving materials dropped from Finance Bill 2016, could we see the resurrection of the proposal to apply VAT at the standard rate to the installation of solar panels, wind turbines and water turbines? As a result of EU infraction proceedings against the UK, the measure was originally intended to have effect on supplies made on or after 1 August 2016 as such supplies were considered by the EU as serving to generate electricity, rather than as a social policy afforded reduced-rating under the European VAT Directive. However, during the debate on Finance Bill 2016, when challenged to confirm categorically that VAT on such supplies would not be increased to 20 per cent, the Government could only state that: Following the decision by the European Court, we have consulted interested parties on the issue and, given the complexities involved, we are still considering the responses. Changes to the filing and payment process for stamp duty land tax (SDLT) changes to SDLT administration, including reductions in the filing and payment window may possibly be announced. VAT Inclusion of wholesale supplies in tour operators margin scheme (TOMS) - TOMS to include wholesale supplies (services supplied by an intermediary to another business for onward sale) within TOMS; current UK VAT practice is at odds with EU VAT law and has been criticised by the tribunals. 5

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