This year’s Autumn Statement marks the end of an era and the start of a new chapter, the Chancellor, Philip Hammond has said. His first Autumn Statement will also be his last with next year’s Budget taking place in the autumn and a Spring Statement instead, which is not intended to include tax announcements. The government’s intention is to move to a single fiscal event each year to provide more stability for businesses and individuals.
It is no surprise that there were many references to the challenges of 2016, to the UK’s strength and resilience nonetheless and the need to be “match fit” for the challenges of leaving the European Union.
The Chancellor announced a raft of spending give-aways worth £36 billion over the forecast period, and modest tax increases. The spending measures will largely be funded through new borrowing. He has promised around £2 billion per annum to support the construction of new (and particularly low cost) homes and a total of nearly £5 billion over the lifetime of the parliament to boost Research & Development through a new fund to support collaborations between business and the UK’s science base, and additional funding to increase research capacity.
As we expected there were very few new tax measures introduced and almost all previously announced measures have been confirmed.
For example, there were no further announcements on the proposed changes to the regime for non-domiciled individuals and we must await the draft legislation to be released on 5 December.
There are new rules relating to interest relief and losses for UK corporation tax purposes which would be relevant for Guernsey structures which include UK resident companies:
- Interest deduction: Further to consultation, the UK’s introduction of new rules to limit the deductibility of interest in corporate groups will come in from April 2017 as expected. Large businesses, some of whom lobbied for the BEPS interest deductions restrictions to be deferred, will have been disappointed to learn that the April 2017 implementation date remains. These changes are part of the UK’s commitment to Action 4 of the BEPS agenda. These rules will limit deductions where a group has net interest expense of more than £2m, net interest expenses exceed 30% of UK taxable earnings and the group’s net interest expense to earnings ratio in the UK exceeds that of the worldwide group. The report states that the government will widen the provisions proposed to protect investment in public benefit infrastructure. Banks and insurance groups will be subject to the rules in the same way as groups in other sectors. Groups will be reviewing the tax efficiency of their structure and in particular the availability of other reliefs, such as capital allowances.
- Losses: The government will be introducing legislation which will restrict the amount of profit that can be offset by carried forward losses to 50% from April 2017. This is subject to a £5m allowance for each standalone company or group.
Non resident companies: There is to be a consultation which could impact Guernsey companies which do not have a taxable presence in the UK but which receive income subject to UK tax (for example, non-resident landlords). The proposal is to bring such non-resident companies receiving taxable income from the UK into the corporation tax regime. Currently, these companies are subject to UK income tax, not corporation tax. This change would mean that the non-resident company would file a UK corporation tax return, be able to take advantage of the lower rate of corporate tax (moving to 17%) but would be subject to the interest restrictions and the loss relief rules being introduced from April 2017 described above.
Offshore funds: The Autumn Statement confirms there will be legislation to ensure that performance fees incurred by offshore funds which are calculated by reference to any increase in the fund’s value are not deductible against reportable income and instead reduce any tax payable on disposal gains. This is intended to equalise the tax treatment between onshore and offshore funds and could have a significant impact on the result of the calculation of UK reportable income.
Offshore tax evasion: HMRC’s ongoing campaign to improve tax transparency and to tackle perceived offshore tax evasion will continue with the introduction of a new legal requirement to correct a past failure to pay UK tax on offshore interests within a defined period of time with sanction for those who fail to do so. Furthermore, the government will consult on a new legal requirement for intermediaries arranging complex structures for clients holding money offshore to notify HMRC of the structures and the related client lists. This represents a new initiative which will almost certainly impact those involved in the Guernsey fiduciary sector.
Foreign Pensions: Another new proposal is that the tax treatment of foreign pensions will be more closely aligned with the UK’s domestic pension tax regime by bringing foreign pensions and lump sums fully into tax for UK residents, to the same extent as domestic ones. Clearly we await further detail but it is possible that this sees the end of the provisions limiting the assessable amount to 90%, the end of the remittance basis for non- domiciles and the end of foreign service relief for lump sum relevant benefits from EFRBSs.
A comprehensive analysis of all tax measures announced can be found here.