In today’s Autumn Statement, the last significant economic announcement of the current Parliament, the Chancellor George Osborne announced a number of amendments to the tax codes. The Chancellor confirmed that the deficit has decreased by less than forecast, largely due to Income Tax receipts being £23bn lower than expected. This can be seen as a consequence of the significant increases in the Personal Allowance over recent years, combined with wages failing to keep pace with inflation (although wage growth is forecast to outpace inflation moving forward).
In our opinion the headline areas of change were:
- Reform of Stamp Duty (SDLT)
SDLT is being reformed for purchases concluded on or after 4th December 2014 (with transitional arrangements). The current ‘slab’ banding will be replaced with new marginal rates. So from Midnight on 3rd December homebuyers will only pay stamp duty on the % of the property price which is above the new thresholds. As a guide this would mean that someone buying a home for £275,000 will save £4,500. On the flip side the reformed rates will mean that SDLT is increased for the most expensive houses. For example someone buying a £5m house will pay a whopping £200,000 more than if they had bought it on Wednesday!
Portion of transaction value SDLT rate
0 – £125,000 0%
£125,001 – £250,000 2%
£250,001 – £925,000 5%
£925,001 – £1,500,000 10%
According to the Chancellor 98% of purchasers are expected to pay less than under the current regime.
- Business Rates to be reviewed
The review of business rates, which have been in existence in one form or another since 1601, has been a campaign topic of business groups for many years. The fact that the tax is based upon the physical space that a business uses, rather than business performance or the economic cycle, is perceived as being outdated in the internet age. The Government will initiate a wide-ranging review into business rates and potential alternatives such as a Sales Tax, reporting back in Budget 2016.
- Tackling avoidance by multi-national companies
The government is introducing multiple measures to take the lead in combating tax avoidance by multi-nationals. These include the implementation of country-by-country reporting; a new anti-avoidance rule targeting the use of financial hybrid instruments; and a new Diverted Profits Tax (of 25%) from 1 April 2015. How this is going to work is a bit of a mystery at the moment!
- Denying CGT entrepreneurs’ relief for disposals of goodwill to related companies
This will affect anyone who transfers their business to a close limited company in relation to which they are a ‘related party’, and receive consideration in the form of cash or debt. Effectively this will mean that entrepreneurs’ relief (ER) will not be available to reduce capital gains tax (CGT) on disposals of the reputation and customer relationships associated with a business (the ‘goodwill’) to a close company to which the seller is related. This change is made alongside a measure to restrict corporation tax deductions when goodwill is acquired from a related party on incorporation.
The measure removes what has been a useful planning opportunity available to proprietors of businesses who sell their business to a close company to which they are related in order to extract funds from the business at a special, low, rate of CGT rather than the normal rates of income tax and national insurance contributions.
As well as the 4 key areas we have picked out above there were the usual alterations to various rates and thresholds:
Personal Allowance – £10,600 from April 2015.
Higher rate threshold – £42,385 from April 2015.
NIC – employer NIC abolished up to UEL for apprentices under 25
NIC – £2,000 Employment Allowance has been extended to care and support workers.
Remittance Basis Charge (RBC) – payable by non-doms, £30,000 charge to remain unchanged for those resident 7 of 9 years. The charge payable by those resident 12 of 14 years increases from £50,000 to £60,000. New charge of £90,000 for those resident for 17 of the last 20 years.
ISAs – limit increased to £15,240 and new legislation to allow ISA allowances to pass to surviving spouse on death.
Stamp Duty Land Tax – wholesale reform as above.
Annual Tax on Enveloped-Dwellings (ATED) – increasing by inflation + 50% for
residential properties worth more than £2m from April 2015.
Reliefs – A range of new reliefs for TV companies and Orchestras.
R&D Tax Credits – above the line (ATL) credits for large companies increased from 10% to 11%. The credits for the small and medium scheme increased from 225% to 230%. A new advanced assurance scheme for small businesses making their first claims will be introduced.
Diverted Profits Tax – a new tax of 25% on profits artificially diverted overseas.
Devolution – ongoing conversations regarding devolution of Corporation Tax to Northern Ireland.
Air Passenger Duty (APD) – Children under 12 exempt for economy flights from May 2015, with under 16’s exempt from 1 March 2016.
Fuel Duty – Frozen for another year.
Needless to say there was lots more detail and fine print but if you want to discuss how the Autumn Statement might affect your business don’t hesitate to call us on 01625 524 127 or email me on firstname.lastname@example.org