The government’s intention to carry out a review of overarching contracts of employment, as announced in the Autumn Statement 2014, is of most relevance to umbrella companies and contractors. A discussion paper will be published in time to inform possible action in the 2015 Budget. The reason given for the review in the Autumn Statement document is to restrict the claiming of tax relief for home to work travel expenses. In his speech however, the Chancellor emphasised that it was to ensure umbrella companies were not depriving people of basic employment rights like the minimum wage. (AS 2.147).
Anthony Thomas, chairman of the Low Income Tax Reform Group (LITRG) voiced disappointment at the lack of help in the Autumn Statement for taxpayers, especially the self-employed, to pay their taxes according to a flexible timetable. LITRG argues that “bunching tax payments into such a lump sum can cause problems for taxpayers” and that flexibility “might enable more taxpayers to comply with their tax payment obligations, benefiting both them and the Exchequer.” Read more . . .
Other Autumn Statement 2014 measures of potential interest are outlined below.
Eligibility for Tax Credits
Eligibility conditions for those claiming tax credits on the basis of self-employment will be tightened. The government says this is to prevent abuse of the system while allowing HMRC to continue to support those who are genuinely self-employed. A new test will be introduced to ensure work undertaken is “genuine and effective” and a requirement that anyone claiming Working Tax Credit as self-employed registers with HMRC and provides their Unique Tax Reference (AS 1.232).
Employee Benefits and Expenses
From April 2015, ‘trivial benefits’ i.e. those worth under £50 will be statutorily exempt. At present, if an employer feels a benefit is trivial, they must request HMRC exemption from disclosing it. The £50 threshold will help to reduce the time and money firms have to spend on administering employee expenses and benefits (AS 2.136)
The government will carry out full public consultation on the framework for new rules for tax relief on travel and subsistence payments, announced in Budget 2014 in response to the Office for Tax Simplification’s (OTS) review of the rules for tax relief on employee benefits and expenses (AS 2.141)
As part of its reform of the rules for employee benefits and expenses, the government will stop tax relief from being claimed on reimbursed business expenses when they are paid in conjunction with a salary sacrifice scheme (AS 1.251).
Restricting Unfair Tax Advantages on Incorporation
The government will restrict the Corporation Tax relief a company may obtain for the acquisition of the reputation and customer relationships associated with a business (‘goodwill’) when the business is acquired from a “related individual or partnership.” (AS 2.146)
The change came into effect from 3 December. Louis Baker, head of professional practices at national audit, tax and advisory firm Crowe Clark Whitehill, quoted in the Law Society Gazette, said “This will end of the flow of firms converting to limited company status solely for tax mitigation purposes. From now on firms will choose their ownership structure and entity on purely commercial and cultural grounds. Many firms will reflect that the partnership/LLP model remains the right vehicle for their firm, and there will be far fewer converting to limited company status than has been the case in recent years.” See full article here.
On the other hand, ATT’s president Natalie Miller thought the measure did nothing to address the difficulty of valuing goodwill and “one side-effect (of the new measure) may be that more businesses are created as limited companies from the outset or transferred into limited companies at an earlier stage” running “against the principle supported by the OTS that businesses should be structured according to their commercial needs rather than any particular tax treatment.”
Tax Avoidance and Evasion Measures
The ‘Diverted Profits Tax’ will come into force from April 1st 2015 at a rate of 25% Also known as the ‘Google Tax’, this new tax has been designed to “counter the use of aggressive tax planning techniques used by multinational enterprise to divert profits from the UK”. (AS 2.142)
The government will introduce legislation to give the UK the power to implement the OECD model for country-by-country reporting. The new rules will require multinational enterprises to provide high level information to HMRC on their global allocation of profits and taxes paid, as well as indicators of economic activity in a country.
The government will introduce legislation to strengthen the Disclosure of Tax Avoidance Scheme (DOTAS) regime and increase HMRC resources involved in administering and enforcing the DOTAS regime by creating a new taskforce (AS 2.161-2.162)
The Chartered Institute of Taxation’s (CIOT) expressed support for change to DOTAS but preferred to see it recast it as a targeted regime dealing specifically with tax avoidance.
CIOT was concerned that the new proposals risked eroding cooperation between HMRC and advisers and that, as a result the DOTAS regime would not operate effectively. CIOT was particularly concerned with the changes being proposed to the ‘hallmarks’ and ‘grandfathering’ provisions, which would mean that schemes previously excluded from DOTAS would now be included. “We think that it is essential that the system should contain sufficient protection for the vast majority of advisers who comply with the rules, and that it should not be cast too widely so as to catch straightforward tax planning arrangements.”
The government will consult on action to take against ‘serial’ avoiders (AS 2.158) and on whether and how to introduce penalties where the GAAR applies (AS 2.159).
Civil penalties for offshore tax evasion will be enhanced (AS 2.155).
The government will consult on a proposal to give HMRC a new power so it can achieve early resolution and closure of one or more aspects of a tax enquiry, while “leaving the other aspects open” (AS 2.169)
The government will extend Funding for Lending to January 2016. The FLS will be further focussed on SMEs and will complement various other initiatives in train to support credit to SMEs, including British Business Bank programmes to make finance markets work better for SMEs and proposals in the Small Business, Enterprise and Employment Bill to improve access to SME credit information. Funding for the Enterprise Finance Guarantee and an expansion of Enterprise Capital Funds will unlock up to £1 billion of finance for smaller businesses (AS 1.38).
Malcolm Small, IoD senior financial services policy adviser, welcomed this news but could see a reduction in business lending as a result new taxes imposed on banks.
Acknowledging the UK’s disappointing performance on exports, the Autumn Statement provides a £20 million package of support for first time exporters. Alongside this, UK Export Finance will modernise and digitalise its processes to make them more accessible to SMEs (AS 1.179).
In addition, the FCO will deliver a £25 million ‘surge for growth’ programme to support projects and trade agreements across the world, including £22 million for emerging and developing economies on projects with the potential to increase UK exports. (AS 1.179 – 1.180)
IoD’s head of Europe & trade policy, Allie Rennison, welcomed additional resources for the digitalisation of export support, describing it as “crucial”. “Nearly half of IoD members have used social media and online networking to identify business opportunities abroad, indicating that digital resources are important tools for would-be exporters”. But, she adds “there is no substitute for tax relief when it comes to offsetting costs to get businesses exporting, and the IoD hopes this will be an important consideration for this and the next government.” For full article click here.
The government will increase the rate of the of the ‘above the line’ R&D tax credit rates from 10% to 11% and will increase the rate of the SME scheme from 225% to 230%, from 1 April 2015 (AS 2.97)
The government will restrict qualifying expenditure for R&D tax credits so that the costs of materials incorporated in products that are sold are not eligible, with effect from 1 April 2015. (AS 2.98)
The government will introduce an advanced assurance scheme for small businesses making their first claim and develop new guidance for R&D tax credits. The government will launch a consultation on the issues faced by smaller businesses when claiming R&D tax credits in January 2015. (AS 2.99).
David O’Keeffe, chairman of the CIOT working group on R&D tax relief, welcomed the news of increased tax relief rates and the advanced assurance scheme “the introduction of this new service, alongside new guidance and the promise of a consultation on the issues faced by smaller businesses, should make it a lot easier for companies to claim R&D tax relief”. The plan to restrict relief for the costs of materials incorporated in products that are sold was not so welcome however. “It will be interesting to see just what the Government has in mind here and why.”
Science and Innovation
£5.9 billion has been allocated over the next Parliament (AS 2.220); £3 billion for individual research projects, world-class laboratories and international subscriptions and £2.9 billion for scientific Grand Challenges including:
- £113m to build a new Cognitive Computing Research Centre in Hartree aimed at giving non-computer specialists insights from big data in order to enhance and design products, services and manufacturing processes.
- £235 million investment in the Sir Henry Royce Institute for advanced materials which will be based at Manchester University
- A £20 million Centre for Ageing Science and Innovation in Newcastle, utilising academic research to tackle many of the challenges faced by an ageing population and, in doing so, ensuring optimum health and quality of life whilst reducing health and social care costs
- £95m investment in European Space Agency programmes to take the operational lead on the first European Rover mission to Mars which will search for life, past and present.
The Institute of Directors (IoD) head of technology policy, Jimmy McLoughlin, said “Britain has long been a leader in the space sector, and funding the first European rover mission will pay for itself far into the future when the information and technology acquired makes regular missions to Mars possible.“