Bill Dodwell, head of Deloitte’s tax policy group, comments on today’s Autumn Statement: “There was a significant focus on cutting tax avoidance, fraud and evasion – raising £9 billion over five years. This is split between about £7 billion on avoidance and £2 billion on evasion and fraud. The biggest measures here are changes to partnerships; changes to tackle onshore disguised employment and a one-off change to bring in hundreds of millions from tax schemes ruled to have failed.
“HMRC has been consulting on the partnership changes and the measures announced today tackle mixed partnerships of companies and individuals. Essentially they aim to charge tax at income rates on profits allocated to the corporate. This will hit hedge funds as well as many smaller professional partnerships, which have used companies to help with working capital. Disguised employment is still going ahead, but from April 2014 and details will presumably come out on 10 December.
“There are no details on onshore disguised employments – again 10 December should reveal all. We also expect confirmation on the offshore intermediaries’ measure.
One important measure is the removal of employers’ NIC (up to the upper threshold) in relation to under 21 year-old employees. The disappointment is that the measure won’t take effect until April 2015. Hopefully the incentive will help the UK achieve a worthwhile reduction in the number of young unemployed.
“There are a number of avoidance measures affecting multinationals. The new controlled foreign company rules have been a big success but HMRC considered there was a small gap in the legislation needing to be fixed. This will prevent UK multinationals from moving interest income currently taxable in the UK into the offshore finance company regime – taxed at a quarter of the rate. There’s also a change to make it much more difficult to use so-called ‘total return swaps’ or equivalent derivatives to allocate risk and profits overseas. Finally, there’s a detailed change on the worldwide debt cap rules.
“One change to the taxation of residential property had been well-trailed. From April 2015, non-residents disposing of UK residential property will be liable to pay UK capital gains tax. The delay in implementation will allow for proper consultation on how the administration will work. The change also taxes property below £2million held in a corporate structure. Perhaps we should regret the piecemeal way in which these changes have been introduced, but many other countries already tax non-residents disposing of real estate. There’s also a little change affecting those with two houses; the three year tax exempt period will be cut to 18 months from April 2014.
“Finally the business rates lobby has achieved some success. Future increases will be capped at 2% and there’s a new relief where empty properties are occupied. What the sector would really like, though, is a wholesale review.”