Before the event it was widely reported that the Autumn Statement would be aimed at helping people who are ‘just about managing’. Ironic, then, that the proposals are plainly those of a chancellor who is ‘just about managing’ to plot a course between the Scylla of the deterioration in government finances now forecast by the Office for Budget Responsibility and the Charybdis of the need to keep taxes low to stimulate growth. As a result there are few changes on the tax front that are of much significance for SMEs.
The alignment of the starting-point for employers’ and employees’ national insurance contributions removes an anomaly and makes the computation a little simpler; but in cash terms it makes no difference at all to employees and none worth speaking of to employers. Abolition of class 2 NICs from April 2018 is confirmed, further simplifying NICs for the self-employed. The same date will see the imposition of NICs on termination payments in excess of £30,000.
The tax and employer national insurance advantages of salary sacrifice schemes will be removed from April 2017 (with a further year’s grandfathering for existing arrangements). The exclusion from the new rules of arrangements relating to pensions, childcare, cycle to work schemes and ultra-low emission vehicles (ULEVs) reflects the importance that government attaches to these things. Indeed, the introduction of new lower benefit-in-kind bands for ULEVs (albeit only from April 2020) underlines the commitment to this technology. Salary sacrifice arrangements for cars, accommodation and school fees are protected until April 2021, recognising the longer-term nature of such benefits.
The government also proposes to consider how benefits in kind are valued for tax purposes. Presumably this is at least in part to deal with what would otherwise be a difference between the tax treatment applied to benefits secured by sacrifice of salary and those where no sacrifice is involved.
The rules on quasi-employees operating through limited companies or similar intermediaries (that is, the infamous IR35 rules) are to altered, passing responsibility for operating them to the engager. For the present, this will apply only to engagers in the public sector, on the basis that ‘the government believes public sector bodies have a duty to ensure that those who work for them pay the right amount of tax’; but it seems unlikely that the rules will not be extended to private sector engagers at some time.
The changes (from April 2017) limiting corporate tax deductions for interest expense will, with a threshold of £2m of interest expense, affect few SMEs (and none whose business is purely domestic) and may actually benefit SMEs somewhat by denying their larger competitors the competitive advantage they may hitherto have had. Likewise the implementation (also from April 2017) of the proposals previously announced to restrict the amount of profit that can be offset by carried-forward losses to 50% will cause few if any SMEs to lose sleep given the threshold of £5m.
The proposal to change the rules for business investment relief (BIR) from April 2017 to make it easier for non-domiciled individuals who are taxed on the remittance basis to bring offshore money into the UK for the purpose of investing in UK businesses may be of benefit to a small number of SMEs and will disadvantage none.
Following the consultation document issued in August on the tax treatment of partnerships, government is to ‘clarify and improve certain aspects of partnership taxation.’ If the condoc is to be followed, most of the changes should be benign or at least neutral; but experience suggests that it would be wise to withhold judgement until the draft legislation is published.
There are at least two slightly worrying developments. First, Budget 2016 announced further legislation countering ‘disguised remuneration’ schemes by employers and employees. It is now proposed to ‘extend the scope of these changes to tackle the use of disguised remuneration avoidance schemes by the self-employed.’ It is not clear what perceived abuse HMRC is targeting here. The self-employed don’t have ‘remuneration’ for tax purposes (whether or not ‘disguised’), and until the position is clarified one feels some nervousness as to exactly what HMRC have in mind. At the same time, tax relief is to be denied for an employer’s contributions to disguised remuneration schemes unless tax and NICs are paid within a specified period.
A second potentially troublesome development is the confirmation that HMRC is to proceed with the introduction of a new penalty for any person who has ‘enabled’ another person or business to use a tax avoidance arrangement that is later defeated by HMRC. At present, ‘enabling’ is far too widely and vaguely defined for comfort, as is ‘tax avoidance arrangement’ come to that. Pressure must continue to be put on HMRC to secure that the new rules do not call into question the ability of SMEs to take advice on legitimate tax planning. It is further proposed that the law be changed so that when considering penalties for any person or business that uses ‘tax avoidance arrangements’ it will no longer be possible to rely on the defence of having taken and relied upon professional advice unless that advice is ‘independent’. Again, the meaning of ‘independent’ will be crucial.
Finally, the chancellor has declared an end to the practice of publishing tax and fiscal changes biannually in an Autumn Statement and Budget Statement. The movement of the annual Budget to the autumn will allow proposals to be exposed in sufficient time for proper examination, consultation and parliamentary scrutiny before implementation from the following April and must be welcome to businesses and their advisers.
Home >Articles > Autumn Statement 2016: The impact on SMEs
Autumn Statement 2016: The impact on SMEs
Just about managing? asks David Whiscombe (BKL).
Before the event it was widely reported that the Autumn Statement would be aimed at helping people who are ‘just about managing’. Ironic, then, that the proposals are plainly those of a chancellor who is ‘just about managing’ to plot a course between the Scylla of the deterioration in government finances now forecast by the Office for Budget Responsibility and the Charybdis of the need to keep taxes low to stimulate growth. As a result there are few changes on the tax front that are of much significance for SMEs.
The alignment of the starting-point for employers’ and employees’ national insurance contributions removes an anomaly and makes the computation a little simpler; but in cash terms it makes no difference at all to employees and none worth speaking of to employers. Abolition of class 2 NICs from April 2018 is confirmed, further simplifying NICs for the self-employed. The same date will see the imposition of NICs on termination payments in excess of £30,000.
The tax and employer national insurance advantages of salary sacrifice schemes will be removed from April 2017 (with a further year’s grandfathering for existing arrangements). The exclusion from the new rules of arrangements relating to pensions, childcare, cycle to work schemes and ultra-low emission vehicles (ULEVs) reflects the importance that government attaches to these things. Indeed, the introduction of new lower benefit-in-kind bands for ULEVs (albeit only from April 2020) underlines the commitment to this technology. Salary sacrifice arrangements for cars, accommodation and school fees are protected until April 2021, recognising the longer-term nature of such benefits.
The government also proposes to consider how benefits in kind are valued for tax purposes. Presumably this is at least in part to deal with what would otherwise be a difference between the tax treatment applied to benefits secured by sacrifice of salary and those where no sacrifice is involved.
The rules on quasi-employees operating through limited companies or similar intermediaries (that is, the infamous IR35 rules) are to altered, passing responsibility for operating them to the engager. For the present, this will apply only to engagers in the public sector, on the basis that ‘the government believes public sector bodies have a duty to ensure that those who work for them pay the right amount of tax’; but it seems unlikely that the rules will not be extended to private sector engagers at some time.
The changes (from April 2017) limiting corporate tax deductions for interest expense will, with a threshold of £2m of interest expense, affect few SMEs (and none whose business is purely domestic) and may actually benefit SMEs somewhat by denying their larger competitors the competitive advantage they may hitherto have had. Likewise the implementation (also from April 2017) of the proposals previously announced to restrict the amount of profit that can be offset by carried-forward losses to 50% will cause few if any SMEs to lose sleep given the threshold of £5m.
The proposal to change the rules for business investment relief (BIR) from April 2017 to make it easier for non-domiciled individuals who are taxed on the remittance basis to bring offshore money into the UK for the purpose of investing in UK businesses may be of benefit to a small number of SMEs and will disadvantage none.
Following the consultation document issued in August on the tax treatment of partnerships, government is to ‘clarify and improve certain aspects of partnership taxation.’ If the condoc is to be followed, most of the changes should be benign or at least neutral; but experience suggests that it would be wise to withhold judgement until the draft legislation is published.
There are at least two slightly worrying developments. First, Budget 2016 announced further legislation countering ‘disguised remuneration’ schemes by employers and employees. It is now proposed to ‘extend the scope of these changes to tackle the use of disguised remuneration avoidance schemes by the self-employed.’ It is not clear what perceived abuse HMRC is targeting here. The self-employed don’t have ‘remuneration’ for tax purposes (whether or not ‘disguised’), and until the position is clarified one feels some nervousness as to exactly what HMRC have in mind. At the same time, tax relief is to be denied for an employer’s contributions to disguised remuneration schemes unless tax and NICs are paid within a specified period.
A second potentially troublesome development is the confirmation that HMRC is to proceed with the introduction of a new penalty for any person who has ‘enabled’ another person or business to use a tax avoidance arrangement that is later defeated by HMRC. At present, ‘enabling’ is far too widely and vaguely defined for comfort, as is ‘tax avoidance arrangement’ come to that. Pressure must continue to be put on HMRC to secure that the new rules do not call into question the ability of SMEs to take advice on legitimate tax planning. It is further proposed that the law be changed so that when considering penalties for any person or business that uses ‘tax avoidance arrangements’ it will no longer be possible to rely on the defence of having taken and relied upon professional advice unless that advice is ‘independent’. Again, the meaning of ‘independent’ will be crucial.
Finally, the chancellor has declared an end to the practice of publishing tax and fiscal changes biannually in an Autumn Statement and Budget Statement. The movement of the annual Budget to the autumn will allow proposals to be exposed in sufficient time for proper examination, consultation and parliamentary scrutiny before implementation from the following April and must be welcome to businesses and their advisers.
