Key highlights in the Chancellor's Autumn Statement speech, from a tax perspective, are hard to come by but perhaps that's to be expected given it was coupled with the announcement of the results of the 2015 Spending Review and was the third budget this year. However, there were a few announcements that are worthy of closer inspection.
In general, many will consider today’s announcements to be broadly positive for the Northern Ireland economy and local business.
NI corporate tax rate
The UK government has demonstrated that it remains committed to the devolution of corporation tax powers to the Northern Ireland Assembly. The ‘Fresh Start’ for devolved government as announced last week, confirmed the date of 1 April 2018 when the devolved rate (which has been agreed to be 12.5%) of Corporate Tax for Northern Ireland can be introduced.
U-turn on tax credits
Many local households will also welcome what the media are classing a ‘U-turn on tax credit cuts’ by the Chancellor. Over 100,000 households in Northern Ireland were expected to have been impacted by the anticipated cuts. It is understood that the NI Executive had set aside £240M to mitigate the proposed cuts to tax credits – the question now arises as to where this amount is best deployed!
Capital infrastructure funding
Additionally, the Spending Review package also provides an additional £600m to the Northern Ireland Executive to invest in capital infrastructure via the block grant through to 2020-21, (an effective rise of circa 12%).
The statement outlines that the implementation of the Stormont House Agreement will unlock £500 million for the Northern Ireland Executive to invest in integrated schools and housing, as well as £350 million of additional borrowing to support economically significant infrastructure.
It is no secret that Northern Ireland requires more ‘Grade A’ office accommodation. With the NI Executive having discretion as to how the Capital Infrastructure funding can be spent, it will be important to be able to use this, as well as the devolved rate of corporate tax, to attract the Foreign Direct Investment required to rebalance our economy. A challenging factor could be the 26 additional enterprise zones being created throughout Great Britain - Northern Ireland will therefore need to be able to clearly differentiate its offering to ensure it capitalises on the proposed corporation tax rate reduction.
Residential property – discouraging investors
Higher rates of stamp duty land tax (SDLT) will be charged on purchases of buy to let properties and second homes from 1 April 2016. The rate charged will be 3% higher than under the existing rules. Corporates or funds making significant investments in residential property will be exempt from the changes, and the government will be consulting on the detail in due course.
Capital gains tax due on sales of residential property will be collected within 30 days, from April 2019. This represents a shortening of the collection period by up to 21 months. A similar intention was announced in relation to the collection of stamp duty land tax, reducing the period from 30 days to 14 days.
These proposed changes, along with the previously announced restriction on deducting interest expense in calculating tax on residential rental profits, begins to feel like an attack on certain types of property ownership.
While increasing affordable housing is to be welcomed, our concern is the impact of the tax measures announced on the rented sector. Investors provide the majority of private rented housing and as they suffer additional tax costs the risk is that they pass these on to tenants, penalising those not owning their home. In today’s society there are many people who either cannot afford to buy (whether now or ever) and those who do not want to buy for variety of reasons. The challenge for the UK remains to build a fully-working institutional rented sector to support social mobility and a vibrant economy.
A digital sting?
The Government has previously announced its intention to move towards digitalisation of tax administration. This is now confirmed with investment to "transform HMRC into one of the most digitally advanced tax administrations in the world" providing access to digital tax accounts for all small businesses and individuals from 2016-17. There is scant detail of how this will be achieved but a potential sting in the tail is emerging. This may present challenges for those who are not technology savvy?
It is also suggested that from 2020 the self- employed and landlords may be required to update HMRC quarterly and that a consultation will take place onbringing payment dates closer to when profits arise. Does this represent a direction of travel for the Government, such that payment dates for other taxes will be shortened? A potentially significant cash flow impact for businesses and individuals to watch out for in the coming months and years.
Other key points include:
- apprenticeship levy – changes were made to this recently introduced levy for larger employers. Whilst expected that only 2% of employers will pay the levy, it is similar to the national minimum wage in that it has the potential to increase costs for some businesses and employers would be well advised to consider whether the engagement of eligible apprentices would be beneficial to their own growth and that of the wider economy, whether or not they actually have to pay the Apprenticeship Levy;
- for employee share schemes the government intends to simplify the current rules. This is expected to include putting beyond any doubt the tax treatment for internationally mobile employees of certain employment related securities and ERS options;
- salary sacrifice – continues to be an area where the government is concerned and is considering what action is required. Expect further announcements in this area;
- HMRC will be allocated an additional £800M for additional work to tackle tax evasion and non-compliance. This is combined with here being a new criminal offence for tax evasion, as well as a ‘naming and shaming’ list of serial avoiders for whom tougher measures are expected to be introduced;
- a targeted anti-avoidance rule will be introduced in order to prevent opportunities for income to be converted to capital in order to gain a tax advantage; and
- a new penalty of 60% of the tax due will be levied, where the General Anti Abuse Rule (GAAR) is successfully challenged by HMRC.
Many of today’s announcements may be well intended by the Chancellor, however some do appear to conflict with the Governments long term goal of simplifying the UK tax system.