As the Chancellor prepares to deliver the first Budget of 2017, our tax and incentives partners give their thoughts on what we can perhaps expect.
Phillip Hammond announced in November that his first Autumn Statement as Chancellor would also be his last, as we move to an annual Autumn Budget from 2017 (so that tax changes can be announced well in advance of the start of the tax year). The Budget on 8 March 2017 will therefore be the final Spring Budget.
What is clear is that this will be a tricky Budget for the Chancellor, who will need to try to balance political and economic considerations (in the lead up to Article 50 being invoked and beyond) with the message that the UK economy remains fully open for business.
More on anti-avoidance
In view of the various changes announced in the Autumn Statement, we are not expecting further significant tax changes. However, we think the current trend of tax legislation that deals with actual or perceived tax avoidance is likely to continue so that, as well as the proposed changes to the taxation of personal service companies (which Tracey Wright discusses below) we expect to see further targeted anti-avoidance measures.
We would hope (but not expect) to see the removal of stamp duty on share transactions (it may be too early for any announcement on this given the ongoing Office of Tax Simplification review). Despite various concerns about the removal of the relief for several years now, we would expect to see capital gains tax entrepreneurs’ relief to remain.
Personal service companies and the gig economy
HMRC has been grappling with the taxation of personal service companies (PSC) for many years and has effectively left them out of account with recent changes to the taxation of agency workers; one might suggest that they fell into the “too difficult” pile. However, last year saw HMRC start the process of change, by introducing reforms of the intermediaries legislation (IR35) in relation to off-payroll working in the public sector, which are due to come into effect from April 2017. In a nutshell, the burden of determining employment status will be moved to the public authority end-user. This is a significant burden for end-users (albeit only public sector entities), who historically were able to pay gross in the knowledge that tax was an issue for the PSC.
Change in relation to the taxation of PSCs, or how they are policed, has felt just around the corner for the last few years. A lot of work has been undertaken in relation to the public sector changes by HMRC: we already have draft legislation and a lengthy technical note with examples. It would be only a small step, and not a surprise, if HMRC announced plans at Budget 2017 to extend the new rules to apply to all end-users.
The recent employment status cases involving the so called “gig” economy will no doubt be exercising some minds at HM Treasury. We do not expect any knee-jerk reaction, but we might see announcements promising to give further consideration to the issue of employment status and the conclusions reached by the OTS when it reported on the topic in March 2015.
Other employee tax updates expected
We do not anticipate any significant changes to employee share plans – in particular, it would seem premature for any announcements on enterprise management incentive options (currently subject to EU State Aid approval). These are a valuable incentive for qualifying companies and employees, and it is to be hoped that they will continue unaffected long after the UK leaves the EU.
From a wider remuneration perspective, we can expect updates in a number of areas, such as the taxation of termination payment changes which are coming in from 6 April 2018. Although the draft legislation has been simplified since it was first published, employers and advisers alike would welcome further refinements in the Finance Bill, so that it achieves its objective of simplification.
Continuing focus on non-doms
There are few if any rumours of new announcements relevant to private clients. Absent any surprises, the industry focus will be on the twin proposals relating to non-domiciliaries first announced in the 2015 Autumn Statement.
The first, exposing UK residential property held via offshore companies to inheritance tax, has been extensively covered by the two consultations and the draft legislation now looks relatively final, albeit it is still missing a few vital features such as provisions for mixed use properties.
The second, which will deem non-domiciliaries to be UK domiciled after 15 years of residence, so removing the remittance basis, is also fairly clear. However, the related “protective” provisions for pre-existing trusts (which offer precious little protection) have numerous problems and are still in flux. Sadly, the Chancellor is unlikely to descend into any useful level of detail, so we are unlikely to obtain any finality until the Finance Bill is published in full later this month
Corporate interest deductibility – work to be done
The closing date has now passed for comments in relation to the draft legislation on corporate interest deductibility. In our view, there is still a lot of work to be done before the legislation is fit for purpose for the April 2017 implementation date. HMRC is still being lobbied to delay introduction of the legislation until April 2018 to allow more time to consult and produce improved legislation. We expect that HMRC has received a significant number of comments on the legislation and hope that it will be persuaded to respond to the pressure and delay implementation.