The Chancellor’s Autumn Statement refers to backing business and enterprise, and to ‘taking further action to tackle tax avoidance, and to ensure that all businesses and individuals pay their fair share’ which are laudable aims. But does it deliver? Part of the answer, of course, depends on what you think is a ‘fair share.’
On the plus side, for innovative companies there is an enhancement to the tax reliefs for research and development from April 1 2015. The relief for small and medium companies will increase from 225% to 230%, and the special ‘above the line’ credit for large companies goes up to 11% from 10%. And the claim process is to be simplified by the introduction of an advance clearance procedure so that companies know in advance that they qualify. This increase should be helpful and may partly counter the recent announcement of the restriction of the patent box relief, which will close to new entrants from 2016 and close completely in 2021. But the expenditure that qualifies for Research & Development allowances is being restricted, which makes the changes look less generous overall.
We are also promised a new relief for production of children’s programmes and consultation about a relief for investment in orchestras. These may be nice things to have but they are a bit marginal in the grand scheme of things. The phrase ‘bread and circuses’ springs to mind!
There is a lot more on the minus side. Apparently, individuals and partnerships are ‘gaining an unfair tax advantage’ by incorporating businesses into a company and claiming Corporation Tax deductions for goodwill. This is abolished immediately, as HMRC says this is ‘an unintended tax benefit’, which is frankly not true. The deduction for goodwill has been in place for 12 years and has never been considered offensive or unintended and it is hard to see where this announcement has come from. It is certainly not a change that is ‘backing business and enterprise’, as it takes away an incentive to incorporate a business, which is a necessary commercial step on the growth curve.
Also with immediate effect, if you incorporate your business you will not be able to claim Capital Gains Tax Entrepreneurs’ Relief on the gain on transferring goodwill and similar assets into the company. This is another ‘anti-avoidance measure’, although it may be counter-productive, as it will reduce the immediate CGT yield as people use the CGT Incorporation Relief and do not pay any CGT on incorporating their business, instead of 10%.
A couple of other things worth mentioning are, firstly, a restriction on the use of trading losses by banks. The idea is that banks’ bad behaviour caused the current economic problems, so why should they be given tax relief for the losses they made? From April 1 215, banks will only be able to use losses to reduce their profits by 50%. Secondly, we have the so-called ‘Google tax’, a Diverted Profits Tax of 25% on profits diverted overseas by artificial arrangements. This might be a popular idea but it is hard to see how this will fit with the UK’s Treaty obligations, EU law, and other international factors.