The Fieldfisher Tax & Structuring team has again been invited to contributed to PLC's Leading Tax Practitioners piece responding to the Autumn Statement. Our comments are set out below.
Probably the most important aspect of the Autumn Statement was that this would be the Chancellor's last (and first) Autumn Statement. It was announced that, from 2017, budgets will be delivered in the autumn. The OBR will produce a forecast in Spring 2018 and the Government then will make a Spring Statement responding to that forecast. The launching of consultations will be by means of the Spring Statement. It is considered by the Government that this will improve external and Parliamentary scrutiny of proposed tax measures. That is a good thing. Particularly in the light of the current political dysphoria that has, and will, occasion, concomitantly, fiscal turmoil.
On the avoidance front, measures that will be introduced include (as presaged in the 2016 Budget) a fixed rate penalty of 30% for participating in VAT fraud, which will be exigible on businesses and company officers who "knew or should have known that their transactions were connected with VAT fraud." HMRC consider that there is a misalignment between this "knowledge principle" and the civil penalty regime's tests of "deliberate" or "careless" behaviour; and that that can require separate Tribunal hearings. Whether this additional stick is, indeed, necessary, and, a fortiori, necessary as regards company officers, is moot.
Few surprises in a rather lacklustre speech from our new Chancellor of the Exchequer in his first – and last – Autumn Statement. The next Spring Budget will also be his last, but never fear, we will have a second Budget in the autumn next year, followed by a Spring Statement in 2018.
Perhaps this "new" pattern (echoing Ken Clarke from 20 years ago) will allow more effective Parliamentary scrutiny of Finance Bills, preventing the continual amendments that have plagued some tax areas, such as the loan relationship rules. Taxpayers will welcome the Finance Bill being enacted before the start of the tax year, avoiding the ludicrous situation of the Finance Act 2016 receiving Royal Assent in September, almost half way through the tax year, with some measures retroactive back nine months.
The also UK continues its eager implementation of the OECD's BEPS proposals, next being the proposed restriction on the deductibility of corporate debt costs to 30 per cent of adjusted EBITDA. It may be too much to expect us to get these rules right first time: amendments are already needed to this year's BEPS-inspired anti-hybrid rules to ensure the legislation works as expected (for which read, the original legislation was introduced too quickly and is flawed). Next up, perhaps some news on the multilateral instrument.
The proof of the pudding will be in the eating: draft clauses for a number of measures – most announced in the past by George Osborne, to be included in the Finance Bill 2017 – will be published on Monday 5 December."
Employee shareholder status (ESS) did have the incidental benefit of raising awareness of the Nuttall Review's alternative vision of employee ownership (EO). Opponents of ESS (and that meant pretty much everyone) readily stated their support for EO in contrast to a measure that no-one ever thought would improve labour market flexibility and which from the outset was identified as a tax planning idea. The Institute for Fiscal Studies described ESS as a "billion-pound lollipop" for tax avoiders. So it is actually no surprise at all that the Government's reason for withdrawing ESS is that it is used for tax planning rather than supporting a more flexible workforce. The Government's response in December 2012 to the consultation on ESS stated clearly that only a very small number of the 209 respondents welcomed the scheme. ESS was a headline grabbing measure for the then Chancellor of the Exchequer, George Osborne. It is a shame that all the resources expended on ESS were not channeled into promoting wider employee share ownership and EO and the budget used instead to index the allowances under tax advantaged share plans and for qualifying bonus payments made by a company controlled by an employee-ownership trust (EOT). (ESS tax reliefs go for shares acquired from 1 December 2016. There is no change to the EOT tax reliefs introduced as a result of the Nuttall Review.)
So, it was Philip Hammond's first and last Autumn Statement, and what can I say? No, seriously, what can I say? There was little new on the corporate tax front, which is not necessarily a bad thing.
The Chancellor will move to a "single major fiscal event" each year, although there will be two Budgets next year as a last hurrah. This move should improve scrutiny and reduce the need for tax change for tax change's sake and is welcome.
The Government recommitted to the business tax road map and, sadly, but predictably, is pressing ahead with the corporate interest expense restriction and reform of loss relief, including their April 2017 timetable.
Changes to the substantial shareholding exemption will be more welcome, including, it would seem, removing the trading requirement for investing (as opposed to investee) companies, which should allow institutional investors to benefit more easily and SSE to apply straightforwardly on the sale of a holding company's last trading subsidiary.
There were fewer stings in the tail than in recent years, although the government will consult next year on bringing all non-resident companies receiving taxable income from the UK into the charge to corporation tax. What does that mean?!
So, it was a calmer Statement, delivered by a calmer Chancellor. It is apt, perhaps, that the biggest tax change in revenue terms was in the increase of insurance premium tax by 2%. Next year promises more; given the OBR forecasts on Brexit and the expected increase in US interest rates, the Chancellor will surely be guaranteed his "major fiscal event"….