George Osborne, who for the past three years must have been tempted to shout “I’m the Chancellor, get me out of here”, has, without the help of Ant and Dec, seemingly clawed Britain out of its financial jungle and clearly felt able to be upbeat in his Autumn Statement with forecasts about the health of the economy much improved since the Budget in March this year. Our own experience is that there is some truth in that too.
The growth forecast issued by the Office for Budget Responsibility was 0.6% in March, for the current year. This has now been increased to 1.4%. Meanwhile, the percentage of debt to Gross Domestic Product has dropped from 7.5% in March, to 6.8%. This is down from 11% when the current Government came into power.
Spending cuts will continue and there is no intention to significantly increase public spending any time soon. There was, however, a positive announcement that all infant school children will be entitled to free school meals from September 2014.
But what about tax announcements? In our Legal Team, we were all waiting for the final chapter in the guidance on changes to both the inter-action of partnership and companies, and also the present automatic self-employment of LLP members. There was very limited on both counts, and a promise of another instalment on Tuesday 10 December, which is timely as that is the first of our two Legal Team seminar days – do come along if you want to hear the very latest news – see click here for more details.
We were initially troubled by the seemingly immediate legislative change to the present flexibility to allocate profits from partnerships to corporate partners, but on closer reading of the limited detail that has been released by HMRC, this change seems only to relate to using such arrangements to create losses, a la some Film Schemes etc, so has no application to our legal practice client base.
There also appears to be a possibility that HMRC are trying to take out the possibility of operating a human partner’s ownership and profit share through an individual limited company, but this is not clear as of today.
Elsewhere in tax, changes were few and, perhaps unsurprisingly, not all positive. As we are used to now, some of them do not come into force for a number of years yet.
On the positive side, business rates relief for small businesses, which was due to end in April 2014, has been extended by one year. Also any rate increases from April 2015 will be capped at 2% per annum. Further help for all business comes in the form of an exemption from April 2015 for employer national insurance contributions on all employees under the age of 21 who are earning less than £813 a week.
For individuals, the personal allowance was confirmed as rising to £10,000 in April 2014. In addition a new, transferrable, married couples allowance of £1,000 (wow!), will be introduced for basic rate taxpayers in April 2015. This will automatically rise in line with any personal allowance increases.
Fuel duty is to be frozen next year, meaning that the price of a litre of fuel will be 20p cheaper than if the previous Government’s fuel escalator had continued to apply.
As has become a regular announcement, more anti avoidance legislation is to be introduced. This will target individuals using companies to avoid an employer/employee relationship being created as well as insist that up front tax payments be made where a particular avoidance scheme has failed in the courts. The detail will need to be reviewed as to how, in particular, the former of these two measures is going to impact on individuals and businesses alike.
The biggest hits on the taxpayer came in respect of capital gains tax. Firstly, as was widely expected, non residents will be required to pay capital gains tax on any property held by them in the UK. This will apply from April 2015. There was more of a shock in respect of private residence exemption, which has remained untouched for years. Under current legislation, if the property has been your private residence at some point, the last three years of ownership is automatically exempt, regardless of whether it was your private residence at the time of sale. This is to be halved to eighteen months from April 2014, a measure that is expected to raise an additional £360m for the Treasury by April 2019.
With just 18 months before the next election, the Chancellor is presumably quite happy with the message he has delivered, although, as he pointed out, there is still got quite a way to go.