On the face of it, the Autumn Statement contains very little in the way of tax changes relevant to our clients. But let’s look below the surface.
A halving of the lifetime Entrepreneurs’ Relief limit to £5m was widely trailed in the press. In the event it didn’t happen. Indeed, it seems that the government now recognises that it was somewhat over-enthusiastic in the changes to ER which it made in Finance Act 2015 – it has announced that it will “consider bringing forward amendments to remove the restrictions for some genuine commercial transactions currently caught by the new rules”. We think that this means that ER might be back on the agenda for companies operating in commercial joint ventures. It would be nice to think that any relaxation would be retrospective: don’t hold your breath though.
Non-doms will want to note that the government are thinking about changing the Business Investment Relief rules (which permit remittance basis users to remit income or gains tax-free to invest in UK businesses) to encourage greater take-up. Given their hostility to non-doms generally this is quite surprising but nonetheless welcome.
Employees of “umbrella” companies and owners of personal service companies may recall an HMRC consultation aimed at removing tax relief for travel and subsistence costs where there is an “overarching” employment contract. The Autumn Statement confirms that these changes are to be implemented from 6 April 2016. At the moment it appears, however, that HMRC have conceded that the restriction will not apply to PSCs which are “IR35 compliant”. It looks as if such companies will continue to be able to claim tax relief for travel costs subject only to the existing rules, including in particular the requirement that the engagement at a particular site should not exceed 2 years. PSC owners will also have been scouring the Statement for more about the proposal – leaked in the Mail and the Guardian – that contractors would be deemed to become employees once they had worked at a client’s premises for a full month. Happily, that proposal appears nowhere in the Statement – perhaps the outcry which greeted the leaks sealed its fate.
This government plainly does not like residential property investors. Last time round, it introduced legislation to restrict tax relief on buy-to-let loans to the basic rate of tax. Of course, that didn’t affect cash buyers. But this time there is a change which affects pretty well everyone buying a residential property other than a main residence. There will be an SDLT surcharge of 3% on top of the normal rates on any purchase of “additional residential properties” above £40,000 (is there really anywhere you can buy a residential property for less than £40,000?). It’s aimed at buy-to-lets and second homes. It looks as if the surcharge will not apply to “corporates and funds owning more than 15 residential properties”: hopefully it will also not apply to property traders, developers or companies (or individuals, come to that) buying residential properties to refurbish and sell on. A period of consultation on the detail is promised; but since the surcharge applies from 1 April 2016 we suspect that the consultation may be a little cosmetic.
Buried in the small print of the Statement is a promise (or threat?) that “government will publish a consultation on the rules concerning company distributions later in the year”. Coming on top of the unexpected and unwelcome 7.5% surcharge on most dividends from next April (which will of course predominantly affect owner-managed companies extracting profit tax – and NIC-efficiently) this sounds faintly ominous. We will take a very close interest in what transpires here. It’s difficult to avoid the impression that that government is getting to be as suspicious of small private companies as it is offended by small private landlords: so heaven help small private property investment companies.
We had thought that the Statement might address the uncertainty (created by a Tribunal decision a little while ago) as to when a property investment activity counts as a business, either by stating categorically that it doesn’t or by enacting some bright-line tests. This matters in the context of tax reliefs available on transferring a “business” to a company, and is especially relevant now that clients are considering their options in the light of the buy-to-let loan interest restrictions referred to above. There is, however, nothing in the Statement on that point so the position remains uncertain, at least until the Chancellor’s next set of pronouncements in the Spring 2016 Budget.
Finally, we could not suppress a smile at the announcement that draft legislation is to be published regarding a “new, simpler process for paying tax”. Where HMRC already holds data, taxpayers will be sent a calculation of tax which (subject to appeal rights) will be a legally enforceable demand: sounds awfully like the old-fashioned tax assessments with which we were familiar until self-assessment was introduced nearly 20 years ago!
For a more comprehensive listing of measures in the Statement, please check out our website here. And to discuss how the changes may affect you or your business personally, please get in touch with your usual BKL contact or use our enquiry form.
