2012 Autumn Statement: business tax implications

Practical Law UK Legal Update 2-522-7686 (Approx. 22 pages)

2012 Autumn Statement: business tax implications

by PLC Tax

Anti-avoidance

Disclosure of tax avoidance schemes (DOTAS): new powers

The government will consult on extending the disclosure of tax avoidance schemes (DOTAS) regime to include significant new information disclosure and penalty powers. For further detail on the regime, see Practice note, Disclosure of tax avoidance schemes under DOTAS: direct tax.

This confirms the statement made by HM Treasury on 3 December 2012 as part of a series of measures designed to tackle tax avoidance and evasion (see further Legal update, Treasury and HMRC outline approach to tackling tax evasion). These proposals supplement the measures contained in a government consultation launched in July 2012 also intended to extend the DOTAS regime (see Legal update, Tax avoidance consultation launched (detailed update).

(See HM Treasury: 2012 Autumn Statement, paragraph 1.178.)

General anti-abuse rule

The government has confirmed that it will introduce a general anti-abuse rule (GAAR), and that guidance and draft legislation will be published later in December 2012.

The government first announced that it would consider introducing a legislative general anti-avoidance rule in the June 2010 Budget and a study group led by Graham Aaronson QC was subsequently established. The study group published its final report in November 2011, recommending the introduction of a targeted GAAR. The government announced as part of the 2012 Budget that it accepted the recommendations and duly launched a consultation that took place over summer 2012. For further detail, see Practice note, Tax legislation tracker: miscellaneous: General anti-abuse rule.

(See HM Treasury: 2012 Autumn Statement, paragraph 1.178.)

Income tax relief for patent royalties abolished

With effect from 5 December 2012, income tax relief is abolished for payments of patent royalties that are not deductible in computing income from any source. The measure is designed to counter known avoidance arrangements exploiting this relief and to simplify the tax code.

Previously, under sections 448 and 449 of the Income Tax Act 2007 (ITA 2007), payments of patent royalties by individuals and other persons were deductible against other income of the same year. The relief applied only to payments that were not deducted in calculating income tax liability from any source (for example, a trade). Legislation will be introduced in Finance Bill 2013 (amending sections 448 and 449 of ITA 2007) to abolish the relief for payments of patent royalties by individuals and other persons, such as trustees, personal representatives and non-resident companies within the charge to income tax. The change will have effect for payments made on or after 5 December 2012.

(See HMRC: Autumn Statement - 5 December 2012, Anti Avoidance and Evasion, Tax information and impact note: Abolition of income tax relief for patent royalties and HM Treasury: Autumn Statement 2012, paragraph 2.112).

Manufactured payments

HMRC has announced that it is closing a tax avoidance scheme that exploits the stock lending manufactured payments rules (see Practice note, Stock lending: tax: Manufactured interest and Manufactured dividends) by the stock borrower (borrower) providing other benefits to the stock lender (lender) (including releasing all or part of any liability to pay an amount). The changes have effect for cases in which a dividend or interest is (treated as) paid on or after 5 December 2012.

A manufactured payment normally arises if the transaction crosses an interest or dividend date and the lender does not receive the real interest or dividend to which it would have been entitled had it not lent the securities. The borrower, therefore, makes a "manufactured payment" to the lender as compensation for the lender not receiving the real interest or dividend.

Section 812 of the Corporation Tax Act 2010 (CTA 2010) provides that a manufactured payment is deemed to be made to the lender if all of the following apply:

A lender enters into a stock-lending arrangement over securities.
As a result of that arrangement, the lender does not receive interest or a dividend paid on the securities.
No provision is made under which the borrower is obliged to manufacture payments to the lender representing the interest or dividend.

The lender is then subject to corporation tax on the deemed receipt. Similar rules apply for income tax purposes (section 596, Income Tax Act 2007 (ITA 2007)). For more detail, see Practice note, Stock lending: tax: Manufactured interest: anti-avoidance and Manufactured dividends: anti-avoidance.

According to the government, the avoidance scheme attempts to prevent that tax charge arising by arranging for some manufactured payment to be made but also for part of the payment representing the dividend or interest to be received in a non-taxable form. Finance Bill 2013 will contain legislation amending section 812 of CTA 2010 and section 596 of ITA 2007 so that a manufactured payment is deemed to be made if both condition A and B and one of condition C and D are satisfied:

Condition A. There is a stock lending arrangement in respect of securities.
Condition B. A dividend or interest on the securities is paid, as a result of the arrangement, to a person other than the lender.
Condition C. No provision is made for securing that the lender receives payments representing the dividend or interest.
Condition D. Provision is made for securing that the lender receives payments representing the dividend or interest and another benefit in respect of the dividend or interest (including the release of the whole or part of any liability to pay an amount.

Condition D effectively extends the circumstances in which the deemed payment rules apply to cover the avoidance scheme of which the government is aware.

If the stock lending arrangement satisfies:

Conditions A to C, the manufactured payments rules apply as if the borrower were required under the arrangement to pay the lender an amount representing the dividend or interest.
Conditions A, B and D, the rules apply as if the borrower were required under the arrangement to pay the lender an amount representing the dividend or interest but after adjusting for any actual payments representing the dividend or interest.

For corporation tax purposes only, the amended section 812 of CTA 2009 takes precedence over section 358 of the Corporation Tax Act 2009 (exclusion of credits on release of connected companies debts) or any other provision of Part 5 of that Act (loan relationships) that prevents a credit from being brought into account. (For more information on the loan relationships rules, see Practice note, Loan relationships.)

(See HMRC: Autumn Statement - 5 December 2012, Anti Avoidance and Evasion, HMRC, Corporation tax: mismatch schemes, property return swaps and manufactured payments, HM Treasury: Autumn Statement 2012, paragraph 1.178 and Written ministerial statements: Draft legislation for Finance Bill 2013: Measures with immediate effect on 5 December 2012.)

Offshore employment intermediaries

The government will conduct a review of offshore employment intermediaries, see Review of offshore intermediaries.

Partnerships and avoidance

A number of statements suggest that HMRC will be looking closely at tax avoidance involving partnerships:

HMRC will increase resources to accelerate resolution of enquiries into long-standing schemes involving partnership losses.
The Chancellor stated in his speech that HMRC is investigating "abusive use of partnerships".
A Ministerial Statement which announced a number of immediate tax changes states under the heading "Tax Mismatch Schemes": "Due to the repeated use of partnerships and similar collective structures in tax avoidance schemes, the Government will be considering the area of taxation of partnerships and similar structures as part of its review of high risk areas of the tax code."

(See HM Treasury: 2012 Autumn Statement, paragraph 2.107, The Autumn Statement 2012: The Chancellor's speech and Written Ministerial Statement: Draft legislation for Finance Bill 2013: Measures with immediate effect on 5 December 2012.)

Property total return swaps

HMRC has published draft legislation, for inclusion in the Finance Bill 2013, ensuring that the corporation tax rules on property total return swaps are not used to produce losses that are unrelated to real exposure to movements in property prices. These provisions have effect for accounting periods beginning on or after 5 December 2012, with periods straddling that date being split for these purposes.

Section 641 of the Corporation Tax Act 2009 provides that certain derivative contracts are to be taxed on a chargeable gains basis. Under section 643 of the Corporation Tax Act 2009, this includes derivatives relating to land or tangible moveable property other than commodities. Under section 650 of the Corporation Tax Act 2009, this also includes property-based total return swaps. Section 659 of the Corporation Tax Act 2009 sets out what part of the return from those swaps is taxed as a chargeable gain (as opposed to being taxed as income, which is the treatment normally afforded to amounts arising under swaps). The credits and debits that are charged in that way in relation to property total return swaps are given by a formula, which defines the capital return by reference to the percentage change in the capital value index used in the swap. (See also Practice note, Derivatives: tax: The second gateway.)

Under the draft legislation, section 643 of the Corporation Tax Act 2009 is disapplied if two or more parties to the derivative are connected. (For the meaning of "connected", see Practice note, Loan relationships: Accounting treatment.) If this provision applies, returns under the derivative will attract income, rather than chargeable gains, treatment.

The draft legislation also provides that section 650 of the Corporation Tax Act 2009 is disapplied in relation to a company if either:

Two or more parties to the swap are connected. (For the meaning of "connected", see Practice note, Loan relationships: Accounting treatment.)
(One of) the main purpose(s) for which the company is a party to the swap is the securing of a tax advantage (as defined in section 1139 of the Corporation Tax Act 2010: see Practice note, Derivatives: tax: Anti-avoidance).

If this provision applies, returns under the derivative will, again, attract income, rather than chargeable gains, treatment.

Finally, the draft legislation provides that if, for a period, the return arising from a property total return swap is lower than the change in the index that forms the underlying subject matter of that swap, for the purposes of the formula in section 659 of the Corporation Tax Act 2009, the actual return is used instead of the movement in the index for that period. This means that the amount attracting chargeable gains (rather than income) treatment is capped by reference to the actual return arising rather than to the change in the underlying index if the latter is higher.

This aim of the draft legislation is to prevent:

Groups of companies from effectively converting capital losses into income losses by entering into intra-group swaps where, overall, the swaps do not result in the group having any net exposure to property.
Companies exploiting the formula used to calculate amounts attracting chargeable gains treatment in an attempt to generate chargeable gains that exceed those actually arising from swaps.

(See HM Treasury: Autumn Statement document 2012, paragraphs 1.178 and 2.111, HMRC, Corporation tax: mismatch schemes, property return swaps and manufactured payments, and Written Ministerial Statement: Draft legislation for Finance Bill 2013: Measures with immediate effect on 5 December 2012.)

Public procurement and tax avoidance

The government will consult on using the procurement process to deter tax avoidance and evasion, and on the proposed definition of key concepts, with a view to the new arrangements being effective from 1 April 2013.

(See HM Treasury: Autumn Statement 2012, paragraph 2.105.)

Tax mismatch schemes

HMRC has announced that it is closing a tax avoidance scheme seeking to exploit the loan relationship and derivative contract rules (see Practice notes, Loan relationships and Derivatives: tax) to obtain a tax advantage by creating mismatches. The rules have effect for schemes entered into on or after 5 December 2012.

The new rules apply to "tax mismatch schemes". These are schemes (including any scheme, arrangements or understanding of any kind whatever, whether or not legally enforceable, involving one or more transactions) that meets either of the following conditions:

Condition A. At the time when the scheme is entered into, there is no practical likelihood that it will fail to secure a relevant tax advantage of at least £2 million. (HM Treasury may substitute a higher threshold by secondary legislation, but this cannot have retrospective effect).
Condition B. (One of) the main purpose(s) of the company in entering into the scheme is to obtain the chance of securing any relevant tax advantage and at the time when the scheme is entered into:
- there is no chance that the scheme will secure a relevant tax disadvantage; or
- there is such a chance, but the expected value of the scheme is nevertheless a positive amount.

A "relevant tax (dis)advantage" is an economic profit (or loss) made by the relevant company over the scheme period, that is not "negligible", and would arise as a result of asymmetries in the way in which the company brings, or does not bring, amounts into account as debits and credits under the loan relationship or derivative contract rules. All profits and losses are assumed to be fully taxable or obtain full relief for these purposes. "Asymmetries" include those relating to amounts or to timing. Economic profits include decreased economic losses and vice versa. Economic profits and losses include, in particular, those made as a result of the operation of the Corporation Tax Acts and any adjustments required to reflect the time value of money. They are taken into account only to the extent attributable to times at which the company is party to the scheme.

If, when entered into, the scheme could give rise to different relevant tax advantages or disadvantages in different circumstances, the amounts and probabilities of these must all be taken into account. If, at that time, the length of the scheme is uncertain, condition A or B is treated as met if it would be met on any reasonable assumption as to duration.

Where the rules apply, no scheme loss or profit is brought into account under the loan relationship or derivative contract rules (or under any other corporation tax provision).

A "scheme loss" or "scheme profit" is a loss or profit that arises from a (series of) transaction(s) forming part of the scheme, is (comprised in) an amount otherwise brought into account under the loan relationship or derivative contract rules, and either:

Affects the amount of any relevant tax advantage that would be secured by the scheme. If, at the end of the accounting period, the amount of the relevant tax advantage (if any) is uncertain, this condition is deemed to be met if, at that time, there is a chance that the scheme will secure a relevant tax advantage and that the loss or profit will affect its amount. If only part of a loss or profit meets this condition, only that part is treated as a "scheme loss" or a "scheme profit".
Does not meet the above condition but arises from a (series of) transaction(s) that might have given rise to a loss or profit that would have done so if events had turned out differently.

(These are the "asymmetry conditions".)

The new rules are to be included in the Finance Bill 2013 and to form new Part 21BA of the Corporation Tax Act 2010. They take priority over the loan relationship and derivative contract unallowable purpose rules, the tax arbitrage rules and the "debt cap" rules (see Practice notes, Loan relationships: Unallowable purpose, Financing multinational groups: tax issues: Arbitrage rules and Arbitrage rules, and Limits on tax deductions for interest: the debt cap).

The rules target schemes that aim to defeat the existing group mismatch legislation in Part 21B of the Corporation Tax Act 2010 (see Practice note, Loan relationships: Group mismatches). That legislation prevents any tax advantage arising as a result of asymmetries arising between different companies in a group. The new rules will similarly prevent tax advantages from arising from asymmetries in other circumstances, not necessarily involving a group of companies. The intended target appears to be schemes under which a company enters into a loan relationship with a partnership of which it is a member and a loan is accounted for differently by the company and the partnership to give a tax advantage. However, the rules are not limited to this situation.

(See HM Treasury: Autumn Statement 2012, paragraphs 1.178 and 2.111, HMRC, Corporation tax: mismatch schemes, property return swaps and manufactured payments, and Written Ministerial Statement: Draft legislation for Finance Bill 2013: Measures with immediate effect on 5 December 2012.)

Business

Corporation tax rate further reduced

The main corporation tax rate for the financial year commencing 1 April 2014 will be reduced by a further 1% to 21%. In the 2012 Budget, the government proposed reducing the rate to 22% (see Legal update, 2012 Budget: key business tax announcements: Corporation tax rates further reduced from 2012-13). As previously announced, the main corporation tax rate for the financial year commencing 1 April 2013 will be 23% (see section 6 of the Finance Act 2012).

The small profits rate for the financial year commencing 1 April 2013 will announced in the 2013 Budget.

(See HMRC: Autumn Statement - 5 December 2012, Business Tax and HM Treasury: Autumn Statement 2012, paragraphs 1.129, 1.130 and 2.72.)

Fuel duty increase cancelled

Businesses will welcome the cancellation of the planned 1 January 2013 increase in fuel duty of 3.02p per litre. The 2013-14 increase has been deferred to 1 September 2013 and, for the remainder of this Parliament, increases will take effect on 1 September each year.

(See HM Treasury: Autumn Statement 2012, paragraph 1.146.)

Simplified regime for unincorporated businesses

The Chancellor confirmed that the government will proceed with the introduction of a voluntary simplified tax regime for sole traders and small partnerships who meet the qualifying criteria. Businesses with receipts of up to £77,000 will be eligible and will be able to continue to use the cash basis until receipts reach £154,000. Individuals involved in those businesses will be able to calculate their profits on a cash basis (not on the basis of accounts prepared according to generally accepted accounting practice) and will not, generally, have to distinguish between income and capital. This tax treatment, which follows the proposals set out in the consultation document of 3 April 2012 (see Legal update, Cash basis for small businesses consultation), will be available from 2013-14 onwards.

In addition, all unincorporated businesses, not just those small enough to qualify for the cash basis, will be allowed to deduct certain expenses (such as business mileage) at a fixed rate.

The government estimates that adoption of these simplified procedures will reduce the annual cost to business of tax administration by £250 million by the end of the spending review period. Part of this saving should be achieved by improved online service which HMRC intends to make available over the next three years. This will include access to all tax services from a personalised homepage with secure digital messaging.

(See HM Treasury: Autumn Statement 2012 (paragraphs 1.138, 2.94 and 2.95) and HMRC: Autumn Statement - 5 December 2012, Business Tax.)

Ten-fold increase in the annual investment allowance

The Chancellor has announced that the capital allowances annual investment allowance (AIA) will temporarily increase from £25,000 to £250,000 for qualifying investment in plant and machinery for two years from 1 January 2013. This measure is designed to encourage and incentivise business investment in plant and machinery, particularly among SMEs.

While this is a generous increase, it remains to be seen whether businesses, especially SMEs, can afford to make use of the allowance in such challenging times.

We expect that legislation for this measure will be included in the Finance Bill 2013.

For background on the annual investment allowance, see Practice note, Capital allowances on property transactions: The annual investment allowance.

(See HM Treasury: Autumn Statement 2012, paragraphs 1.77, 1.134 and 2.74.)

Transfer pricing and multinationals

Following extensive press coverage about tax avoidance by large corporates, the government announced that it will take the following steps to ensure that businesses, including multinational companies, "pay their fair share of tax":

Alongside France and Germany, provide additional resources to the Organisation for Economic Co-operation and Development (OECD) to speed up international efforts to deal with profit shifting and erosion of the corporate tax base at a global level. The UK will make prevention of "artificial transfers of profit to tax havens" an important priority for its G8 presidency in 2013.
Invest further funding in HMRC to enhance its risk assessment capability for large multinational companies.
Increase HMRC's transfer pricing specialist resources to accelerate the identification, challenge and resolution of transfer pricing issues.

(See HM Treasury: Autumn Statement document 2012 paragraphs 1.139 and 2.106 and The Autumn Statement 2012: The Chancellor's speech.)

Compliance

Government to pursue US FATCA-style agreements with other jurisdictions

The government has confirmed that it will be looking to enter into enhanced tax information sharing agreements with other jurisdictions in a form similar to the agreement that it concluded with the US in September 2012 implementing the US Foreign Account Tax Compliance Act (FATCA) (as to which, see Legal update, UK and US sign agreement to implement FATCA). The confirmation in the 2012 Autumn Statement mirrors that contained in announcements made on 3 December 2012 by HM Treasury and HMRC (see Legal update, Treasury and HMRC outline approach to tackling tax evasion). To follow progress on the implementation of the UK-US FATCA agreement, see Private client tax legislation tracker 2012-13: FATCA: information powers. For links to further PLC content on FATCA, see Practice note, A guide to PLC's FATCA resources.

(See HM Treasury: Autumn Statement 2012, paragraph 1.174.)

HMRC's new strategy to tackle tax avoidance and evasion

HMRC will be setting up a new centre of excellence, staffed by experts, to tackle offshore tax evasion and generally build up its offshore capability. The government confirmed an additional £77 million will be invested in HMRC to allow it to accelerate the resolution of long-standing avoidance schemes (including schemes involving the use of partnership losses). The extra injection of funds will also enable HMRC to expand its Affluent Unit to deal more effectively with taxpayers with net worth of over £1 million, increase specialist resources to tackle offshore evasion and avoidance of inheritance tax (through the use of offshore trusts, bank accounts and other entities) and improve its risk assessment technology. HMRC aims to use the extra funds to help it make better use of data to identify tax evaders and to review its investigatory powers in this area. The confirmation in the 2012 Autumn Statement mirrors some of the announcements made on 3 December 2012 by HM Treasury and HMRC (see Legal update, Treasury and HMRC outline approach to tackling tax evasion).

(See HM Treasury: Autumn Statement 2012, paragraphs 1.175, 1.176 and 2.109.)

Employee share schemes and incentives

Employee shareholder employment status

The 2012 Autumn Statement confirms the introduction of a new employee shareholder employment status with effect from April 2013 (originally the new status was referred to as "employee owner"). Individuals will receive capital gains tax (CGT) exempt shares in their employer worth at least £2,000, in exchange for agreeing to become employee shareholders (and with no other consideration permitted). Employee shareholders will not have certain employment protections and rights normally enjoyed by employees.

The government indicated that it was considering ways to reduce income tax and NICs on the acquisition of shares by employee shareholders on 3 December 2012. The 2012 Autumn Statement gives a little more information about this, stating that one option under consideration is for the employee shareholder legislation to deem that an employee shareholder pays £2,000 for their employee shareholder shares, for income tax and NICs purposes, with the result "that the first £2,000 of shares received under the new status would be free from income tax and NICs". The possibility of income tax and NICs liabilities on acquisition of employee shareholder shares has always been a key concern about the practicality of the proposed new employment status. The government's latest proposal would eliminate income tax liabilities on acquisition for employee shareholders receiving the minimum value of employee shareholder shares (assuming that there is no joint election to tax the unrestricted value of the shares when acquired, if they are restricted securities). However, it would also confirm an income tax liability for employee shareholders who acquire shares worth more than £2,000 (with tax payable through PAYE and NICs liabilities due, if the shares are readily convertible assets).

(See HM Treasury: Autumn Statement 2012, paragraphs 1.122, 2.55 and 2.56.)

Nuttall review of employee ownership

HM Treasury and HMRC will work with the Department for Business, Innovation and Skills (BIS) to implement the government's response to the Nuttall review of employee ownership, including contributing to the development of "off the shelf" templates and toolkits. The government will report further on this in the 2013 Budget.

For more information about the Nuttall review, see Legal updates, Nuttall review of employee ownership: government response and Share buybacks: BIS consultation on implementation of Nuttall Review.

(See HM Treasury: Autumn Statement 2012, paragraphs 1.128 and 2.146.)

OTS simplification of tax-advantaged share schemes

Following a review of the recommendations of the Office of Tax Simplification (OTS) on simplifying tax-advantaged employee share schemes, the government will "implement a package of simplifications" to these schemes, with many of the changes coming into force in 2013. We expect draft amending legislation to be published in draft clauses for the Finance Bill 2013 on 11 December 2012.

For more information about the OTS proposals, see Legal update, Tax-advantaged share scheme simplification: HMRC response to OTS.

(See HM Treasury: Autumn Statement 2012, paragraph 2.93.)

For a summary of all share schemes and incentives related announcements, see Legal update, 2012 Autumn Statement: share schemes & incentives aspects.

Employment and pensions

Company car tax

The government will consider the case for providing time-limited incentives through company car tax to encourage the purchase and development of low-emission vehicles. It is unclear whether this is simply a repetition of the commitment made in the 2012 Budget to introduce in the Finance Bill 2013 100% first year capital allowances on very low emission cars bought by businesses in the period 1 April 2013 to 31 March 2015 (see Legal update, 2012 Budget: key business tax announcements: Company cars), or whether it is an additional (or alternative) incentive in the form of a reduced assessable benefit for the employee.

The government states that it will consult with car manufacturers and motoring groups ahead of the 2013 Budget.

(See HM Treasury: Autumn Statement 2012, paragraph 2.92.)

Controlling persons proposal shelved

The government announced that it has decided not to proceed with its proposal to require engaging organisations to deduct tax and NICs from, and account for employer NICs on, payments made to certain "controlling persons". (For the proposal, see Legal update, HMRC consults on disapplying IR35 for controlling persons.) However, amendments will be made to the IR35 rules (as to which, see Practice note, IR35) so that they apply to office holders. The government promises to keep this area under review.

(See HM Treasury: Autumn Statement 2012, paragraph 2.103.)

Employment benefits: car and van fuel

The multiplier for the fuel benefit charge will increase to £21,100 (2012-13 £20,200) from April 2013. The fuel benefit charge applies to employees provided with free fuel for their company car for private use. Income tax and Class 1A NICs are charged on a percentage of the multiplier. The relevant percentage depends on the carbon dioxide emissions of the company car.

The van fuel benefit charge increases to £564 from April 2013 (2012-13 £550).

(See HMRC: Tables confirming tax and tax credit rates and thresholds for 2013-14.)

Employment benefits and termination payments simplification

The government announced that it will ask the Office of Tax Simplification (OTS) to carry out a review of ways to simplify the taxation of employee benefits and expenses and termination payments. This will include an initial scoping exercise to identify the most complex areas for taxpayers. (A number of such areas have been highlighted by the working groups established to consider the integration of tax and NICs: see Practice note, Tax and NICs integration: working group discussions.) The OTS will provide details shortly.

(See HM Treasury: Autumn Statement 2012, paragraph 2.96.)

NICs: no changes to rates but class 1 thresholds change

No changes to NICs rates were announced in the Autumn Statement. However, HMRC published the following changes to the class 1 NICs thresholds:

Lower earnings limit: £109 per week (2012-13 £107).
Primary threshold: £149 per week (2012-13 £146).
Secondary threshold: £148 per week (2012-13 £144).
Upper earnings limit: £797 per week (2012-13 £817).

In addition, the Chancellor announced that for 2014-15 and 2015-16, the upper earnings limit will increase to stay in line with the 1% increase in the basic rate limit (see Personal allowance increase to £9,440 from April 2013).

(See HM Treasury: Autumn Statement 2012, paragraph 2.47 and HMRC: Tables confirming tax and tax credit rates and thresholds for 2013-14.)

Operational integration of income tax and NICs

At the time of the 2012 Budget, the Chancellor announced that he would be going ahead with a further consultation on the operational integration of income tax and national insurance contributions (NICs) (see Legal update, 2012 Budget: key business tax announcements: Income tax and NICs reform). He has now confirmed that the government will wait for further progress on planned operational change to the tax system (by which we assume he is referring to the introduction of real time information accounting for PAYE) before consulting formally on the integration of income tax and NICs. This is in accordance with the provisional timetable set out in the November 2011 consultation, which foresaw consultation on draft legislation in 2013-15 and implementation of a reformed system in 2017 (see Legal update, Government plans for integration of income tax and NICs and simpler personal taxation).

(See HM Treasury: Autumn Statement 2012, paragraph 2.52.)

Pensions tax relief restrictions

The Chancellor announced that the government will reduce the amount of tax relief available for pensions saving by cutting both the annual allowance and the lifetime allowance available for active members of registered pension schemes:

Annual allowance. The annual allowance will be reduced from £50,000 to £40,000 for the tax year 2014-15 onwards.
No changes have been proposed to the annual allowance carry-forward rules. Accordingly, it would appear that the amount of any unused allowances arising from the tax years 2011-12 to 2013-14 and available for carry forward to 2014-15 and subsequent years will continue to be based on the £50,000 limit.
Lifetime allowance. The lifetime allowance will be reduced from £1.5 million to £1.25 million for the tax year 2014-15 onwards.
Individuals who do not already have primary, enhanced or fixed protection will be able to apply for "fixed protection 2014" after the Finance Bill 2013 is in force (expected summer 2013). Fixed protection 2014 will work in the same way as the existing fixed protection regime (as to which, see PLC Pensions, Practice note, Pensions tax: transitional protection).
HMRC will also consider whether to introduce personalised protection for individuals with pension pots in excess of £1.25 million on 5 April 2014. This would allow individuals to continue saving without losing protection. Their lifetime allowance would be the greater of the value of the member's pension rights on 5 April 2014 (up to a maximum of £1.5 million) and the standard lifetime allowance (£1.25 million from April 2014). Any savings in excess of the individual's lifetime allowance would be subject to a lifetime allowance charge when the benefits are taken.
HMRC will consider whether individuals should be able to apply for both fixed protection 2014 and personalised protection.

The measures will be included in the Finance Bill 2013 and will be published in draft on 11 December 2012.

HMRC estimates that 98% of individuals currently approaching retirement have a pension pot worth less than £1.25 million and that 99% of pension savers make annual contributions below £40,000, with the average person contributing around £6,000 a year.

(See HM Treasury: Autumn Statement 2012, paragraphs 1.179, 1.180, 2.57 and 2.58 and HMRC: Autumn Statement, 5 December 2012: Pensions savings: tax relief.)

Review of offshore intermediaries

The government is to undertake an internal review of the extent to which offshore intermediaries are used to avoid tax and NICs, and will provide an update at Budget 2013.

(See HM Treasury: Autumn Statement 2012, paragraphs 1.178 and 2.104.)

Environment

For all environment announcements, tax and non-tax, see Legal update, 2012 Autumn Statement: key environmental implications.

Financial services

Bank levy: increase in rate

The rate of the bank levy will increase to 0.130% from 1 January 2013. (For details of the bank levy, see Practice note, Bank levy.) Although not specified in the announcement, it may be expected that this change, which applies to the "full" rate of the levy, will be reflected by a change in the reduced rate for long-term equity and liabilities (see Practice note, Bank levy: Rate of levy) to 0.065%. In addition, although also not stated in the announcement, it may be expected that chargeable periods straddling 1 January 2013 will be split for the purposes of applying the new rate, as this has been the approach taken in the past (see Practice note, Bank levy: Rate of levy). The aim of the rate increase is stated to be to ensure that the levy raises at least £2.5 billion each year and is intended to compensate for the proposed reduction in the main rate of corporation tax.

(See HM Treasury Autumn Statement: 2012, paragraphs 1.131 and 2.79, HMRC: Bank levy amendments and Written Ministerial Statement: Draft legislation for Finance Bill 2013: Measures with immediate effect on 5 December 2012.)

Bank levy: double tax relief

HMRC has published draft legislation, for inclusion in the Finance Bill 2013, clarifying that foreign bank levies do not qualify for UK tax deductions. The UK rules make provision to avoid double taxation under the UK levy and either the French or the German equivalent levy by giving credit for the foreign levy against the UK levy (see Practice note, Bank levy: Double taxation). The draft legislation stipulates that:

No corporation tax deductions are allowed in respect of any non-UK equivalent of the bank levy. This provision is to have effect for periods of account beginning on or after 1 January 2013, with periods straddling that date treated as two separate periods for these purposes. It is also to have effect in relation to earlier periods of account to the extent that the non-UK levy is the subject of a claim for double tax relief (see Practice note, Bank levy: Double taxation) made on or after 5 December 2012.
Balancing payments (whether direct or indirect) between group members to meet, or by way of reimbursement of, payment of a non-UK equivalent of the bank levy are ignored for UK corporation and income tax purposes (see Practice note, Bank levy: Non-deductibility and balancing payments). This provision is to have effect for periods of account beginning on or after 1 January 2013, with periods straddling that date treated as two separate periods for these purposes. It is also to have effect in relation to earlier periods of account to the extent that the non-UK levy is the subject of a claim for double tax relief (see Practice note, Bank levy: Double taxation) made on or after 5 December 2012.

In addition, indirect (as well as direct) balancing payments between group members to meet, or by way of reimbursement of, payment of the UK bank levy are ignored for UK corporation and income tax purposes (see Practice note, Bank levy: Non-deductibility and balancing payments). This provision is to have effect for periods of account beginning on or after 1 January 2013, with periods straddling that date treated as two separate periods for these purposes.

These changes are expressed to be merely clarificatory in nature, with the aim being to ensure that double relief is not available through both credits and deductions.

(See HM Treasury: Autumn Statement 2012, paragraph 2.76, HMRC: Bank levy amendments and Written Ministerial Statement: Draft legislation for Finance Bill 2013: Measures with immediate effect on 5 December 2012.)

Intellectual property and R&D

Corporation tax reliefs for creative sector

The government has confirmed that it will introduce corporation tax reliefs for each of the following industries:

Video games.
Animation.
High-end television.

The government has also announced that it will offer a payable tax credit for each of the three reliefs of 25% of qualifying expenditure.

The reliefs were first announced as part of the 2012 Budget and the government held a consultation over summer 2012. For further detail, see Tax legislation tracker: intellectual property: Corporation tax relief for creative sector.

The reliefs will have effect from April 2013 and are subject to EU state aid approval.

(See HM Treasury: 2012 Autumn Statement, paragraphs 1.133 and 2.73.)

New R&D tax credit in 2013

The government has confirmed that it is providing support for innovative business through the tax system by introducing an "above the line" credit for R&D in 2013, as previously announced in the 2011 Autumn Statement (see Legal updates, Consultation on "above the line" R&D credit and 2011 Autumn Statement: business tax implications: R&D "above the line" tax credit). Further details on the design of the credit will be announced shortly.

(See HM Treasury: Autumn Statement 2012, paragraph 1.95.)

Oil and gas

Allowance for investment in existing fields

The government has confirmed its announcement, made on 7 September 2012, of a new tax allowance for certain mature oil or gas fields (brown fields) (see Legal update, New tax allowance for brown field oil projects).

(See HM Treasury: Autumn Statement 2012, paragraph 2.78.)

Consultation on tax regime for shale gas

In announcing its intention to establish an Office for Unconventional Gas, which will "join up responsibilities across government, provide a single point of contact for investors and ensure a simplified and streamlined regulatory process", the government also confirmed its announcement, on 8 October 2012, to consult on a targeted tax regime for shale gas (see Tax news round-up to 9 October 2012: New tax break for shale gas). No further details or a time-frame for the consultation were given.

(See HM Treasury: Autumn Statement 2012, paragraph 1.83.)

Large shallow-water gas field allowance

The government has confirmed its announcement, made on 25 July 2012, of a new allowance for large, shallow-water gas fields in the UK continental shelf (see Legal update, New supplementary charge allowance for large, shallow-water gas fields). On 23 October 2012, HMRC published for consultation The Qualifying Oil Fields Order 2012, which will introduce the new allowance (see Legal update, Oil and gas tax: field allowance regulations for large, shallow-water gas fields and West of Shetland fields published for comments).

(See HM Treasury: Autumn Statement 2012, paragraph 2.77.)

Personal tax and investment

Additional rate to go down to 45% in April 2013

The Chancellor made it clear in his speech that he has no intention of going back on the commitment to reduce the 50% additional rate of income to 45% (see Legal update, 2012 Budget: key business tax announcements: 50% tax rate to reduce to 45% in April 2013). He stated that "punitive tax rates do nothing to raise money, and simply discourage enterprise and investment in Britain", whilst noting that tax revenues from the rich fell by £7 billion in the first full year of the 50% rate.

(See The Autumn Statement 2012: The Chancellor's speech and HMRC: Tables confirming tax and tax credit rates and thresholds for 2013-14.)

Capital gains tax (CGT) annual exempt amount to increase by 1%

The capital gains tax (CGT) annual exempt amount (AEA) will increase by 1% to:

£11,000 in 2014-15.
£11,100 in 2015-16.

The government is increasing a number of tax thresholds by 1% in parallel with its decision to limit increases in benefits to 1%, see Personal allowance increase to £9,440 from April 2013.

The AEA is indexed to the CPI from 1 April 2013 unless the government overrides this, as in this announcement. For more information, see Practice note, Tax data: capital gains tax: Annual exempt amount.

(See HM Treasury: Autumn Statement 2012, paragraph 1.162.)

Capping of unlimited income tax reliefs confirmed

As announced in the 2012 Budget, previously unlimited income tax reliefs will be capped at the higher of £50,000 or 25% of an individual's income. Charity reliefs will not be capped.

A consultation on the cap closed on 5 October 2012 and draft legislation is expected on 11 December 2012 for inclusion in the Finance Bill 2013 (see Legal update, Consultation on capping income tax reliefs launched (detailed update)). The exclusion of charity reliefs was confirmed in June 2012 following a government U-turn (see Legal update, U-turn on capping charity income tax reliefs confirmed). To follow further developments, see Tax legislation tracker: miscellaneous: Capping unlimited tax reliefs.

(See HM Treasury: Autumn Statement 2012, paragraph 2.51.)

Individual savings accounts (ISAs): annual subscription limit for 2013-14

The annual subscription limit (see PLC Private client, Tax data: individual savings accounts: Annual subscription limits) for 2013-14 will be £11,520.

(See HM Treasury: Tables confirming tax and tax credit rates and thresholds for 2013-14.)

Individual savings accounts (ISAs): consultation on qualifying investments

The government has announced that it will consult on expanding the list of qualifying investments for stocks and shares ISAs to include shares traded on the small and medium enterprises (SME) equity markets (for example, AIM). There is no indication of the time-frame for this.

(See HM Treasury: Autumn Statement 2012, paragraph 2.59.)

Personal allowance increase to £9,440 from April 2013

The Chancellor announced that the personal allowance for those born after 6 April 1948 will increase (by £1,335) to £9,440 and the basic rate limit will be set at £32,010 for 2013-14.

This represents an additional increase of £235 over the increase to the personal allowance announced by the Chancellor in the 2012 Budget (£9,205) and an equal increase in the reduction to the basic rate limit also announced in the 2012 Budget (£32,245). Accordingly, in 2013-14, higher rate taxpayers who benefit from the personal allowance, will see a small benefit compared with 2012-13.

The Chancellor also announced that for each of tax years 2014-15 and 2015-16, the basic rate limit will increase by 1% rather than by inflation.

(See HM Treasury: Autumn Statement 2012, paragraphs 1.141 and 1.143 to 1.145 and HMRC: Tables confirming tax and tax credit rates and thresholds for 2013-14.)

For a summary of all private client related announcements, see Legal update, 2012 Autumn Statement: private client implications.

Property

Exemption for new commercial property from empty property rates

Subject to consultation, the government will exempt all newly built commercial property completed between 1 October 2013 and 30 September 2016 from empty property rates for the first 18 months, up to the EU state aid limits. This measure is designed to promote further private investment in commercial property.

For background, see Practice note, Business rates relief for empty property.

(See HM Treasury Autumn Statement 2012, paragraphs 1.135 and 2.85.)

No new tax on homes

The Chancellor stated that the government:

"won’t introduce a new tax on property. This would require a revaluation of hundreds of thousands of homes. In my view it would be intrusive, expensive to levy, raise little and the temptation for future Chancellors to bring ever more homes into its net would be irresistible. So we’re not having a new homes tax.".

This appears to rule out a new "Mansion tax", as championed by the Liberal Democrats. However, we expect draft legislation to be published next week "to stop the richest avoiding stamp duty". This is presumably a reference to the proposed annual charge for high value residential property owned by non-natural persons (see Legal update, Enveloping high-value residential property: consultation on annual charge and extending CGT to non-residents).

(See The Autumn Statement 2012: The Chancellor's speech.)

REITs

It has been widely reported that the government announced in the 2012 Autumn Statement that it will go ahead with proposals to remove tax barriers which discourage UK REITs from investing in other UK REITs and that no changes will be made at this stage to encourage UK REITs to invest in social housing. We have not been able to locate a published government statement to this effect and we have also seen comment suggesting that the announcement will instead be made on 11 December. We will follow up on this issue and report further shortly.

For the April 2012 consultation on these issues, see Legal update, REITs consultation includes proposals to change tax rules for REITS investing in REITs. For background on REITs, see Practice note, UK REITs: questions and answers.

For a summary of all property related announcements, see Legal update, 2012 Autumn Statement: property implications.

Expected by 11 December 2012

We expect the government to publish responses to a large number of tax consultations and draft legislation for the Finance Bill 2013 on or before 11 December, see Practice note, What to expect in draft Finance Bill 2013: key business tax measures. We will include a high level summary of these publications in the PLC Tax weekly e-mail to 11 December 2012.

Sources

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2012 Autumn Statement: business tax implications | Practical Law