George Osborne delivered his much anticipated Autumn Budget this week. As expected due to the decision to combine the Autumn Budget with the Governments ‘Comprehensive Spending Review’, some of the issues that are most important to you our clients were buried under a mire of facts, figures, percentages and the inevitable political rhetoric. The press has mainly focussed on the spending review outlining how the days of austerity are over. We shall see.
I have outlined below the key changes and developments which may affect you, your family and your business.
Buy-to-let Landlords hit again
It was bad enough that in the July 2015 Budget it was announced that the amount of interest landlords claim as an expense will reduce slowly to 25% (starting from 2017). Buy-to-let Landlords have now been hit with a 3% stamp duty surcharge on buy-to-let properties from April 2016. This also applies to the acquisition of any second home.
Also in connection with properties, capital gains tax due on the sale of second homes or buy-to-lets will be payable within 30 days of completion from 2019. Fortunately, the capital gains tax exemption on the sale of a person’s main home continues despite speculation that it might be curtailed for high-value properties.
Travel and subsistence
The government has confirmed that it is going ahead with changes to prevent contractors from obtaining tax relief on the costs of their travel to work, including the cost of meals or accommodation related to that travel.
This change was announced earlier this year, but at the time the government was still considering whether to include everyone who worked via a personal service company (PSC).
We now know that the crackdown will not affect PSC contractors, unless the contract is caught by anti-avoidance rules known as IR35. This means that if the contractor would have been self-employed had he worked as an individual rather than using a PSC, he can continue to obtain tax relief for his travel and subsistence.
However, this is not the end of the story. Changes to IR35 are also likely, following a review earlier this year by the Office of Tax Simplification. Any reform is likely to tighten the current rules, and make them easier for HMRC to police and enforce.
Winding up for tax reasons
When companies are wound up, the money inside the company can sometimes be paid out as capital, so that the more generous capital gains tax regime applies.
This can be a way of avoiding income tax, but this planning is now likely to be blocked, however, details have not yet been revealed on how.
Childcare vouchers will be replaced
The chancellor announced 30 hours of free childcare for three and four-year-olds will be available from 2017 in England, but only to parents working more than 16 hours and who each earn £100,000 or less. Details are still thin on this proposal.
There was one welcome extension, with the doubling of small business rate relief to continue until April 2017, having been originally pegged to cut off in April of next year. This affects over 600,000 businesses, on full and tapering relief rates – an easy win for the government, and a simple show of support for SMEs.
Tax avoidance in the digital age
Tax avoidance is legal and tax evasion is illegal. This is what I was taught when studying for my Chartered Accountant qualification. However, since the Tory government has been in power (either as part of the coalition or as they are now) a new ‘Aggressive tax avoidance’ term has been coined and instilled into the minds of all those who work at HMRC. They are constantly trying to close loopholes on legal tax avoidance measures and will take you to court even if you are not doing anything wrong, just to be a pain in the proverbial. HMRC’s powers are ever increasing and the Chancellor announced new powers in the Autumn Statement for HMRC.
Change is afoot though and not in a good way as a lot has been announced over HMRC’s plans to move to an entirely digital service. This means that there is now an emphasis on paying tax early rather than later (whether it is accurate or not), a habit HMRC is developing, started from the introduction of Accelerated Payment Notices for those using registered tax avoidance schemes.
Announced were new plans to force banks to share the data they hold on small businesses. Whilst details are scarce, it would appear that banks will be required to open up access to the accounts data of businesses to three credit information giants – Experian, Equifax and CreditSafe. This is really exciting, as more open data can vastly improve small businesses’ access to finance.
I am often posed the question why is the government doing this? I cannot say as I am not in government but can merely speculate. The primary reason for such changes is due to the manifesto promise not to raise VAT, National Insurance contributions or income tax and as such the Government is closing loopholes and introducing new taxes.