UK Autumn Statement 2016: leaves little changed

by Tim Law

UK Chancellor of the Exchequer Philip Hammond delivered his first, and as it turned out his last, Autumn Statement today. He hasn’t decided that the task is too much for him, but rather announced that there will be a single annual announcement about tax law changes each year going forward.

This is a move towards some more stability, and was echoed in the Autumn Statement itself. It included little that was unexpected. There was plenty about worsening economic forecasts, uncertain times ahead, additional billions for infrastructure investments, and a confirmation that there are no plans for further welfare cuts in this Parliament.

The focus today was on reduced growth forecasts, the resulting impact on tax receipts, and dramatically increased borrowing. There were limited new changes to the tax system, in part because of measures that have already been announced. So for example we saw reconfirmed:

• The “business tax road map,” setting out the plan to 2020 and beyond;

• New rules on interest deductions applicable from April 2017 where, in certain circumstances, tax relief on interest expense could be restricted to 30% of EBITDA;

• The cut in the rate of corporation tax to 17% by 2020; the lowest in the G20;

• Changes to the rules on loss relief from April 2017, restricting to 50% the profit in any given year that can be covered by losses from previous years.

There were a number of announcements aimed at employees, the self-employed and businesses:

• Measures to tackle the use of disguised remuneration schemes;

• A consultation on measures to mitigate the tax consequences of increased small business/sole trader incorporations;

• Alignment of employer and employee National Insurance Contribution thresholds;

• Removal of the tax and National Insurance advantages of salary sacrifice schemes (excluding those relating to pensions, childcare, Cycle to Work and ultralow emission cars);

• Removal of the tax advantages of share awards “linked to employee shareholder status;”

• Measures to tighten the availability of the Flat Rate VAT Scheme;

• The standard rate of Insurance Premium Tax increases from 10% to 12% from June 2017.

So what was new for large businesses?

On the positive side:

• From today until Spring 2019 there will be a 100% first-year allowance for expenditure incurred on electric vehicle charge-point equipment. This means 100% tax relief for capital expenditure in the year it is incurred;

• There is also some easing of the conditions for the substantial shareholdings exemption, which exempts certain disposals of shares in trading companies or groups from corporation tax.

On the negative side:

• Banks may have looked at the proposal for 50% loss relief restriction as a positive, given they are currently subject to a 25% restriction, but the details show that this 25% limit for banks remains;

• To make matters worse for banks, as well as insurance companies, they will be subject to the same interest deductibility restrictions as other sectors. Many had expected there to be an exemption here. There are also some changes to the bank levy;

• There were no additional incentives for capital expenditure in other sectors. The UK has one of the least generous regimes in this area. Nothing in the Autumn Statement changes that.

• There will be a consultation on whether certain overseas companies, to date treated as UK income tax payers, will become subject to the corporation tax regime. This could mean some property companies becoming subject to the cap on interest relief, for example.

So this may well be the last Autumn Statement, as we move to having a single announcement each year. At present the UK has a Budget in March and the Autumn Statement in November. Both include tax and spending changes.

In future there will be a Budget in November, and just a financial update in the Spring. This is a good thing given the amount happening in the world of domestic and international tax. Two finance bills every year has left virtually no respite in the cycle of announcement, consultation and legislation.

A calm and thoughtful approach might be just what is needed in light of Brexit and other political events around the globe.

Having said that, I suspect the stability, certainty, and simplicity businesses are calling for is still some way off.