Posted on 23 November 2016
In Mr Hammond’s first and last Autumn Statement, his opening comment was that he is committed to creating a UK economy that ‘works for everyone’.
His announcements may have contained few surprises but his speech was delivered with confidence and humour, as Simon Littlejohns, Head of Tax at Friend Partnership Limited explains.
The IMF has confirmed that the UK will be the fastest growing economy in 2016 when compared with all of the other major economies.
Mr Hammond made repeated reference to the UK’s performance against major European nations. His announcements concentrated on infrastructure and innovation with a view to the announced measures to improve the UK’s productivity which is lagging behind our nearest neighbours. Mr Hammond announced a new productivity fund, alongside a commitment to new transport and communication infrastructure initiatives.
Much has been spoken of the ‘Northern Powerhouse’ but we can now expect a similar push for the Midlands, with the publication of a strategy document for the Midlands which is expected shortly.
Mr Hammond concluded his speech with his taxation plans for the UK in the coming years.
Whilst Mr Hammond may not have produced any white rabbits, the announcements were delivered without major interruption and with a sprinkling of jokes that are not often witnessed in what can be a dour event. However, it has to be said that there were a number of disappointments along the way.
Mr Hammond’s final announcement was that this was his first and his last Autumn Statement. There will no longer be two “budgets” each year. In 2017 there will be a transitional period with a budget in March to be followed by a budget in the autumn. The autumn timing will be retained going forward on the basis that this timing will ensure that there is sufficient time to consider budget proposals before their implementation in the following April.
There will be a follow up announcement in the Spring which will be limited to a comment in line with the Office of Budget Responsibility commitments for twice yearly reporting.
The move to one annual budget is in line with other major economies and will hopefully ensure that a degree of simplification is brought to bear. The UK tax system suffers from intense complexity and repeated changes do not help.
Mr Hammond made it plain that his aim is to ensure that the UK remains the number one destination for business.
He is sticking with the business tax measures which have been announced with the aim of creating a taxation regime which is certain and stable. He confirmed that the rate of corporation tax would fall to 17% in 2020.
There is to be an alignment from April 2017 of employees’ and employers’ national insurance. There will be no cost to the employee as a result of this change and there will be a small increase for the employer.
Changes to salary sacrifice arrangements
In addition, from April 2017, there will be a tightening of the rules with regard to salary sacrifice arrangements in a bid to level the playing field and ensure that the tax payable by individual employees is the same regardless of where they are working.
The arrangements that HMRC wants to eradicate are those where salary has been sacrificed in return for tax free benefits such as health checks, car parking and mobile phones. Salary sacrifice arrangements with regard to pensions, cycle to work and child care will be retained. Employers with salary sacrifice schemes in place will have an extra year to deal with them.
Mr Hammond believes that £5 billion of tax could be raised with the new measures targeted at multi-national businesses.
The measures are in the wake of concerns with regard to the tax planning undertaken by some household businesses which have resulted in them paying a very low level of tax in the UK.
The aim of the measures is to ensure that where businesses are generating substantial profits in the UK they pay substantial tax in the UK. This will be achieved with the removal of some of the devices which have enabled such businesses to move profits to other jurisdictions.
It has to be said that with the complicated tax regime in the UK there are plenty of opportunities for such businesses to plan their affairs to ensure that they pay as little tax as possible.
I expect to see further anti-avoidance measures in the years to come.
As is normal for any such statement there were further announcements with regard to the fight against tax avoidance.
Mr Hammond indicated that the UK tax gap, the difference between what is paid and should be paid, is one of the lowest in the world, however further measures are still necessary.
In addition to announcing anti-avoidance measures to deal with specific issues, including VAT avoidance, there is a further set of measures to deal with those who actively encourage taxpayers to avoid tax. This last measure is problematic in that all those involved in advising clients with regard to their financial affairs may now be concerned as to whether or not the advice they are giving could put them at risk.
As with a lot of HMRC measures the legislation is akin to a shotgun when what was is really needed is a sniper’s rifle to pick off those firms and individuals who concentrate solely on creating and selling “artificial” schemes.
Mr Hammond estimated that the anti-avoidance measures that he has announced would bring in £2 billion of lost tax.
The government’s commitment is to raise the personal allowance to £12,500 and the basic rate band to £50,000. Mr Hammond expects this to be achieved by the end of the current parliament with the personal allowance increasing to £11,500 in April next year.
The aim with this initiative is to ensure that the tax burden on low and middle income families is reduced as well as taking a number of taxpayers out of the tax net altogether.
The personal tax measures were announced alongside changes to the national living wage and the universal credit.
It is perhaps a shame that Mr Hammond couldn’t do better than confirm what has already been announced.
Mr Hammond announced that there will be consultation on the subject of business structures.
In essence the Treasury is seeking to deal with the problem of how to create a fair tax system where the tax result will be the same, or similar, for individuals who choose to work as a sole trader as for those who work through a company or some other business structure.
Good luck to them on this – it will be very interesting to see what sort of measures they come up with.
- As expected there will be a freeze on the fuel duty increase with motorists in line for a £130 per annum saving. I am not sure whether any motorists will actually notice the benefit as the weeks and months go by.
- Insurance premium tax will however increase from 10% to 12% in June next year – this is likely to cancel out the fuel duty saving for car owners!
- Tenants will soon be better off as the government is committed to banning letting agents from charging fees for drawing up tenancy agreements and carrying out all the various checks.
- In addition the government is going to look at the retail energy sector to see whether any measures are needed and also deal with pension cold calling.
- One final measure was the announcement of a new savings bond with an expected 2.2% gross interest rate for a term of 3 years, with a maximum investment of £3,000. This is aimed at benefiting those savers who are, at the moment, getting a pitiful return as a result of the low interest rates.
Autumn Statement disappointments
On reflection following the announcements there are a number of disappointments:
- Despite all the talk about innovation and productivity there was no increase in the tax relief available for expenditure on research and development (R&D).
- There was no further reduction in the rate of corporation tax beyond 17%. With president elect Trump looking at corporate tax reductions in the US, I had expected that the Chancellor may have gone a little further here to ensure that the UK remains the number one ‘go to’ tax regime.
- Whilst the announcement of the harmonisation of employers’ and employees’ national insurance is welcome, it is a shame that Mr Hammond did not go a step further and suggest that he is considering a harmonisation of income tax and national insurance. I think that this is such a political ‘hot potato’, and the differences can be exploited for political gain, and this is why he may have dodged this issue – it has been around for a good number of years too.
- There was no suggestion of any measures to deal with the simplification of what is a horrendously complicated UK tax code. On occasions it is very difficult to explain to clients precisely why the tax result is as it is because there are so many detailed rules to be considered before any conclusions can be given.
It has to be said that the announcements were all frightfully boring.
There were no white rabbits and no measures that had not been heavily telegraphed in the press in the lead up to the announcements.
It is a great shame that Mr Hammond didn’t announce measures to support business, with more targeted initiatives such as for R&D and expenditure on plant and machinery – why no increase in the Annual Investment Allowance?
There was no lift for business in what was announced.
Having trawled the small print all I see is more minutiae. It will though be interesting to see whether anything does emerge to lighten the gloom.
It remains to be seen whether Mr Hammond will be able to create any more excitement in his first budget speech in the New Year.
There was nothing in the announcements that requires immediate action.
The salary sacrifice measures have been there for a while and any employers affected by the changes will no doubt be addressing the changes they need to make to their remuneration policies.
The actions that are necessary are those which apply as businesses approach their year-end and individuals approach the tax year-end, namely:
- Make sure that you have all the information which is necessary to calculate the liabilities;
- Consider all available tax reliefs and use them where possible; and
- Discuss your tax affairs with your professional advisors as soon as possible.