WHEN THE CHANCELLOR gives his Autumn Statement on 29 November he is likely to focus on strategies for growing the UK economy. A week later, the government will publish the draft finance bill 2012, which will include the proposed legislative changes to help stimulate growth.
As the coffers are empty, the Chancellor is likely to focus on anti-avoidance, regarding which we have already seen activity commence through the variety of specialist task forces launched in 2011 and the publication of Graham Aaronson's GAAR report on the 21 November.
According to the Aaronson report, a GAAR should initially apply to the main direct taxes including income tax, capital gains tax, corporation tax and petroleum revenue tax, as well as national insurance contributions. The proposed objectives for the GAAR include:
• Deter abusive tax avoidance schemes;
• Contribute to providing a more level playing field for business;
• Reduce legal uncertainty around tax avoidance schemes;
• Help build trust between taxpayers and HM Revenue & Customs (HMRC); and
• Offer opportunities to simplify the tax system.
Anti-avoidance will continue to be a recurring theme over the next year and following consultation on the GAAR report, we will see more legislation and even tougher crack-downs on tax evaders.
Digital by default
The government is striving to encourage all forms of communications between taxpayers and HMRC to be electronic, but there are issues with data security and groups of individuals who will struggle with on-line communications. Furthermore, there are a number of consultations and pilots occurring simultaneously, aimed at encouraging electronic communications. What with Real Time Information, auto-enrolment, new tax/NIC charges under ‘disguised remuneration' and now PAYE pooling, many taxpayers will suffer change fatigue and limit themselves to the minimum required by law. If HMRC wishes to achieve the maximum benefit from all these innovations, then it should implement a single, coordinated programme of changes instead of what looks increasingly like a series of experiments in which taxpayers are the unfortunate guinea pigs.
Our predictions for changes to personal taxes include:
• Entrepreneurs' Relief may be tightened as part of improved anti-avoidance legislation
• Capital Gains Tax (CGT) on non-UK resident individuals owning UK investment assets (including homes)
• IHT may be subject to review following the Office of Tax Simplification recommendation
There have certainly been calls for the 5% shareholding requirement to be removed from Entrepreneurs' Relief and we think its existence creates an unfair ‘cliff-edge'. Our expectation is that the threshold is likely to be retained and that there may be new anti-avoidance legislation to prevent structuring that gets around the threshold by using joint venture companies to invest.
CGT on non-UK resident individuals owning UK investment assets may also be amended. Most countries tax capital gains on assets, such as property, that are located in their territory. If the UK starts to tax transactions on assets owned by non-residents, it will increase tax liabilities for some, but will often only increase the UK's share of the overall global tax take, as such gains are usually also taxable in the individual's territory of residence. However, this ‘gap' is part of what makes the UK attractive to non-domiciles and if it is changed, this will be one more disincentive for them to come to the UK.
There is plenty of scope for changes to IHT, as it has evolved organically since it was known as Estates' Duty. The original OTS proposals were vague, so we are likely to see the details beginning to crystallise. The best thing the government could do is to agree what IHT is supposed to achieve and find a way to make it happen.
We expect the following announcements regarding corporate taxes:
• CGT on non-UK companies owning investment assets (including homes)
• Outline of reaction to the various consultations and further proposals, including R&D, patent box, CFCs, etc.
CGT on non-resident UK companies is similar to potential changes for non-resident owning and selling UK-based assets. This could increase the UK share of global tax take, but may be a disincentive for foreign corporates in the UK.
There have been a number of consultations and proposals launched this year aimed at stimulating growth and innovation. We are likely to see more detail on a patent box regime to launch in 2013. There will also probably be further consultation on improving the R&D regime, especially for SMEs.
The draft finance bill will probably include clauses relating to the new CFC regime to launch in 2012. The point on CFCs and growth is that the current rules have created significant uncertainty and new rules, if they remove/reduce the uncertainty it will enable commercial decisions to be made more easily and could stimulate growth.
George Bull is senior tax partner at Baker Tilly
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