As in several past years, Tax Journal asked us to summarise in 600 words the effect of the Autumn Statement on owner-managed businesses. This is it.
The article, originally published in Tax Journal Issue 1287, is also available on the Tax Journal website.
On the face of it, the Autumn Statement contains very little in the way of tax changes relevant to owner-managed businesses, but the small print promises an ominous sounding consultation on changes to the rules for company distributions, writes David Whiscombe.
The widely leaked halving of the lifetime entrepreneurs’ relief limit was conspicuous by its absence. On the contrary, the government now seems to recognise that the restrictions to the relief introduced by Finance Act 2015 went further than necessary; and 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. It is to be hoped that the relaxation will be retrospective, though the Statement is silent on that front. Similarly, following the 2013 revamping of the ‘loans to participator’ rules, the government has evidently realised that their scope is wider than intended, so that most loans to charitable trusts will henceforth be outwith the charge.
In a further prospective change which may be helpful, the government will consult on 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.
Owners of personal service companies will note that the proposals to restrict tax relief for travel and subsistence are to be implemented from 6 April 2016. However, in an important rowing back from the original proposals, it appears that the restriction will apply only to PSCs to which the ‘IR35’ intermediaries legislation applies; and not, as proposed, to all PSCs where the end user has power to ‘supervise, direct or control’, yet falling short of creating deemed employment.
Before the Statement, the popular press contained a number of apparently authoritative leaks to the effect that contractors would be deemed to become employees once they had worked at a client’s premises for a full month. The proposal was heavily criticised at the time and happily it makes no appearance in the Statement.
The apprenticeship levy (0.5% of payroll) to fund apprenticeships will affect very few OMB, since the £15,000 allowance will mean that levy bites only on payrolls in excess of £3m.
On SDLT, it is not quite clear how – if at all – the surcharge, targeted at the government’s buy-to-let bête noire, will affect OMBs in the property sector. It looks as if privately owned property investment companies with fewer than 15 residential properties will be caught. Hopefully, though, it will not apply to companies (or individuals, come to that) buying residential properties as trading stock. It seems likely that this hope will not be in vain, since the Statement provides that, from 1 April 2016, reliefs from ATED and the penal 15% SDLT charge are to be introduced or extended in connection with equity release schemes, property development activities and properties occupied by employees.
Buried in the small print of the Statement is a promise (or threat?) that the ‘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 – especially because it falls under the section of the Statement headed ‘Tax avoidance’, along with a commitment to amend (yet again) the transactions in securities rules. The overall effect seems to be that the government is becoming as suspicious of small private companies as it is offended by small private landlords – so heaven help small private property investment companies.
There had been some speculation that the Statement might address the uncertainty created by the Elizabeth Moyne Ramsay case ([2013] UKUT 0226 (TCC)) 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. There is, however, no indication of any intention to do any such thing, so taxpayers and advisers must continue to struggle on to interpret case law and limited HMRC guidance as best they can.
Finally, it is intriguing to note that draft legislation is to be published regarding a ‘new, simpler process for paying tax’. Where HMRC already holds data (so unlikely to affect most OMBs), taxpayers will be sent a calculation of tax which (subject to appeal rights) will be a legally enforceable demand. This brings us full circle to the situation which existed before self-assessment was introduced nearly 20 years ago!