“We must collect the taxes that are due,” said Osborne. “Today I’m announcing the largest package of measures to tackle tax avoidance, tax evasion, fraud and error so far this parliament, and it will raise £9 billion over the next five years.”
The package includes changes to the imposition of capital gains tax (CGT) and changes to shut down some of the tax advantages of partnerships.
Neal Todd, partner at Berwin Leighton Paisner (BLP), said the sentiment of ensuring the correct level of tax is paid is a laudable objective, but questioned the impact on certainty given that the general anti-abuse rule (GAAR) has already been implemented and is supposed to act as a catch-all framework.
“Imposing the most wide-ranging anti-avoidance package in this parliament on top of the GAAR and so on after the GAAR was implemented will lead to unnecessary uncertainty about the interplay between various sets of anti-avoidance provisions. It can only further lengthen the UK tax code,” said Todd.
Capital gains tax
In what he referred to as a fairness issue, Osborne announced a personal taxation change regarding capital gains tax when an individual sells a residential property that is not their primary residence. At present, UK residents are charged CGT, whereas non-residents are exempt. As of April 2015, non-residents will also be brought into that net.
“The changes to the capital gains tax regime impose additional tax on residential property held by non-UK resident individuals, but only from April 2015 and only on future growth. This will be perceived as an appropriate levelling of the playing field compared to UK resident individuals, and is not out of step with other major economies,” said Damian Bloom, partner at BLP.
“However, these reforms ought to have been considered as part of last year’s extensive consultation on the taxation of UK property held by non-resident entities. To prevent any further undermining of the stability of the UK tax regime for international individuals, it would be helpful if the government could confirm whether there will be any further changes to the taxation of residential property for the remainder of the current parliament,” said Bloom.
But Rosalind Rowe, real estate tax partner at PwC, said she is concerned about the government’s intention to levy tax on future gains realised by non-UK resident individuals. She claims it undermines the government’s flagship message of being open for business.
“The tax can be easily avoided – the owner just retains and never sells the property,” said Rowe. “It is unlikely to dampen the heat of the housing market and the costs of policing and collection will result in a potential net loss of revenue for the Exchequer. It also gives the wrong message – is Britain really open for business?”
Richard Mannion, national tax director at Smith & Williamson, pointed out that the delayed introduction of the change will give time for many to sell CGT-free in the interim.
In another clamp down on avoidance, Osborne announced that stamp duty will be abolished for shares purchased in exchange traded funds from April 2014, which Paul Rutherford of DLA Piper said will be welcomed by the UK asset management industry and follows moves in the March 2013 Budget to stimulate investment into UK equities by abolishing stamp duty on AIM and ISDX quoted shares and on UK mutual funds.
Despite the focus on anti-avoidance measures, there was no mention of multinational corporate tax avoidance.
“Whilst wanting to avoid alienating large corporations, the Chancellor knows that he cannot afford to be perceived as soft on tax avoidance and these measures should gain positive headlines and are politically correct in the current environment,” said Richard Woolich, partner at DLA Piper. “However, I expect to see the issue resurface again soon.”
Given the developments occurring at international level, it is perhaps not surprising that Osborne has not sought to implement domestic policies here.
Partnership tax review
The announcement of a partnership tax review aims to counter the abusive use of partnerships by certain businesses to avoid national insurance contributions.
But Mark Saunders, tax director at PwC, said it will be hard to work out where the dividing line is in practice between legitimate and disguised remuneration.
Saunders said that for a law firm where salaried partners are off the payroll (and he adds that there are good commercial reasons for someone having the title of partner without having an equity stake in the business), the changes could lead to crippling costs.
Bank levy
Osborne also announced that the rate of the UK bank levy will increase to 0.126%. This new rate will be effective from January 1 2014. The levy’s base will also be broadened in line with previous consultations. Osborne said the measure will raise £2.7 billion in 2014-15 and £2.9 billion each year from 2015-16.
“Each bank levy rate rise is a double hit for the UK’s competitiveness – it makes the UK a less competitive location for banking business and it makes UK headquartered banks less competitive when doing business overseas,” said Matthew Barling, PwC banking tax partner. “Seven rate rises in three years sends a stark message regarding whether Britain really is open for banking business.”
Margaret Hodge, chairwoman of the UK Parliament’s Public Accounts Committee, was also critical of the Chancellor’s statement, questioning the changes to the UK’s controlled foreign companies (CFC) regime and the opportunities for tax avoidance that it has created, as well as criticising Osborne for not following through on previous pledges.
“The Chancellor promised £3.2 billion from Swiss bank accounts but a meagre £440 million has been brought in,” said Hodge. “When will the government’s rhetoric match reality?”
Osborne responded that while some government initiatives will inevitably raise less revenue than forecast, others are bringing in more than expected. He referenced the government’s deal with Liechtenstein as one example of a measure bringing in more than expected.
Miscellaneous measures
Other measures announced in the Autumn Statement include an extension of the film tax credit to cover regional theatre and new tax relief for investment in social enterprises.
Business rate rises will also be limited to 2%, rather than being linked to inflation.
“Lobbying around business rates has clearly borne fruit and Osborne’s cap on business rates to 2% per annum is to be applauded and will help many high street retailers through the post-Christmas doldrums and the fierce competition they face from online retailers,” said Richard Rose, tax partner at BDO.
The introduction of a 12 month payment plan will also be welcomed by small businesses.
The Chancellor also reiterated the government’s commitment to a competitive corporate tax rate.
“Corporate tax cuts have increased investment and productivity,” said Osborne, adding that the higher growth being seen offsets much of the cost. “It would be economic madness to raise corporation tax.”
Mannion welcomed Osborne’s commitment to the corporate tax rate falling to 20% in 2015, which he described as “attractive” compared to many other countries in the G20.
“This gives useful clarity which should help reassure international and mobile businesses,” said Mannion.
Perhaps surprisingly, Osborne did not mention the UK’s Patent Box regime, which is being challenged at European level on the grounds that it contravenes provisions in the EU’s Code of Conduct on Taxation.
Stella Amiss, international tax partner at PwC, said the lack of comment was disappointing “given that this has been under the spotlight from the EU and again investors will be looking for stability”.
Desire for stability not met
After urging the Chancellor to make stability and certainty his top priorities for the Autumn Statement, Todd is disappointed at what he calls a “return to the bad old days of legislative uncertainty” following Osborne’s announcement of five new tax policies which will take effect immediately.
“This is especially disappointing as the government has previously pledged to introduce measures in a considered way and had criticised the previous government for bringing in measures too quickly,” said Todd. “These measures have an immediate, unforeseen effect on the taxpayer, which flies in the face of reforms to the tax system and adversely impacts on the relationship between taxpayers, businesses and government.”
“The taxpayer should be entitled to a certain degree of predictability on tax law, instituted by a government that takes adequate deliberation before introducing legislative changes,” he added.
While Amiss points out the new restrictions making it harder for some businesses to qualify for certain CFC regime provisions is “a curve ball and will send mixed signals to investors of the government’s commitment to these reforms”.
“There will now be a degree of instability surrounding the corporate tax reforms that will not be welcomed,” said Amiss.
