The new payroll tax, dubbed an ‘apprenticeship levy’, would apply to companies that spend more than £3 million a year remunerating staff. The levy will apply from April 2017 and is expected to bring in £11.6 billion in four years.
Osborne’s U-turn on tax credits – scrapping his original plans to cut them – dominated the initial reaction to a Budget speech that was light on detail.
Sandy Bhogal, head of tax at Mayer Brown in London, said: “Two themes featured strongly in the Autumn Statement, and the use of the word ‘themes’ is no accident, as the detail available was limited.
The themes Bhogal identified as dominant themes in the Budget for business were reforms to the taxation of fund manager remuneration and HMRC attempts to influence corporate behaviour.
On fund manager remuneration, the proposal is for this to be taxed as income, unless the underlying fund can show that it undertakes long term investment activity.
“The precise scope and ambit of this change will be much debated through the legislative process. It will be interesting to note whether this impacts the long term future of the sector in the UK and the extent to which it impacts the previous government’s much-vaunted Investment Management Strategy,” said Bhogal.
Taxpayers did not have a long wishlist in the run-up to the Autumn Statement; most wanted a focus on simplicity and stability to be the order of the day.
"Over the last year we have had one election fought over tax and two Budgets," said Caroline Le Jeune, partner at Blick Rothenberg, who added that stability and an end to tax tinkering would mean taxpayers "can actually conduct their business and financial affairs with some degree of certainty".
"The current climate of continual change results in people hesitating over conducting business in the UK."
This stance was echoed by Genevieve Moore, also a partner at Blick Rothenberg, who said businesses need a chance to make commercial decisions "without the need to second-guess what the next move from the government may be".
"It's been a turbulent 12 months, with a raft of new legislation introduced, including the hastily enacted diverted profits tax (DPT), which is far from perfect and has led to uncertainty in the business environment," said Moore.
Anti-avoidance action
As Bhogal pointed out, one focus of Osborne’s speech was on compliance and the tools at HMRC’s disposal to influence corporate behaviour.
“Making large businesses publish a tax strategy, new offences for corporate facilitation of tax evasion, amendments to the disclosure regime, further anti-avoidance legislation and a penalty regime under the GAAR all indicate that HMRC is still exasperated with certain taxpayer behaviour,” said Bhogal. “However, creating further administrative burdens is clearly an overreaction to the antics of a minority of taxpayers who could be dealt with by better targeted measures – and indeed sanctions which already exist.”
However, question marks hang over the extent to which this compliance drive will be achievable.
“HMRC’s investment of £800 million to tackle tax evasion is expected to give a tenfold return in yield,” said Gary Gardner, partner at Blick Rothenberg. “Alongside the reduction in presence and headcount, there is a question as to whether this can be achieved.”
Silent on BEPS
Given recent developments at international level, including the final delivery of the OECD-led project looking at options to counter tax base erosion and profit shifting (BEPS).
“There was no noteworthy announcement with respect to BEPS, save for confirmation that the OECD proposals under Action 2 [hybrids] will be implemented in time for 2017,” said Bhogal. “And still no confirmation as to when revised guidance on the DPT can be expected, which is disappointing as this knee jerk legislative reflex continues to create huge uncertainty.”
UK legislation may be amended in line with the final BEPS recommendations - for example in the area of defining 'permanent establishment'. Similarly, the tax deductibility of corporate interest expense, and possible tweaks to the UK Patent Box regime, could also be made to ensure UK rules are aligned with new international standards.
However, with consultations on these items still underway, no announcement is expected until the next Budget.
