29 November 2011 - Autumn Statement: few tax announcements

The Chancellor has delivered the 2011 Autumn Statement, in which he has kept to the course on which he set out last year. He made no adjustment to overall spending and borrowing, saying “people know that promises of quick fixes and more spending this country can’t afford, at times like this, are like the promises of a quack doctor selling a miracle cure”. 

The majority of the Chancellor’s speech focussed on initiatives to drive private sector growth and further restrain the cost of the public sector, and responded to the OBR’s forecasts. As expected, the Statement included few tax announcements, but there were a few important surprises, which are highlighted here. 

Corporate tax system

The Chancellor once again confirmed the Government’s commitment to develop the most competitive corporate tax regime in the G20, trailing next year’s reduction in the mainstream rate to 25% and the draft foreign profits legislation to be released next week. 

He also announced that 100% capital allowances would be available for plant and machinery investment incurred between April 2012 and March 2017 in the following six English Enterprise Zones: 

• Black Country
• Humber
• North Eastern
• Sheffield
• Tees Valley
• Liverpool

Discussions between the Government and the devolved administrations may lead to enhanced capital allowances becoming available in other UK Enterprise Zones. 

Consultation will commence at Budget 2012 to introduce an ‘above the line’ tax credit to encourage research and development activity by large companies. This is intended to build upon the measures announced in the Budget 2011 to increase the generosity and accessibility of R&D tax credits for SMEs, but no details have been announced at this stage. 

Relatively little new corporate tax anti-avoidance was announced. It will however be put beyond doubt that manufactured overseas dividends cannot be used to obtain repayment or set off of income tax not paid over to HMRC. Furthermore, the amount of tax relief given to employers making asset-backed pension contributions to registered pension schemes will be clarified so as not to give rise to additional relief from tax geared schemes.

 

Bank Levy 

The Chancellor confirmed his opposition to the European proposals for a Financial Transactions Tax, referring to it as a tax on pension funds rather than a tax on bankers. 

There was, however, a sting in the tail. Tax collections from his preferred alternative, the Bank Levy, are falling short of the targeted £2.5bn pa. The effective full rate of the Bank Levy from 1 January 2012 has therefore been increased from 0.078% to 0.088%, raising an additional c. £0.3bn pa.

 

Income tax and capital gains tax 

From April 2012, in a further significant improvement to the Enterprise Investment Scheme, 50% income tax relief will be provided on investments of up to £100,000 in qualifying new start ups, regardless of the investor’s marginal rate of income tax. This new Seed Enterprise Investment Scheme (SEIS) may be more of a major headline than a major new tax incentive, however, as individual companies are restricted to a cumulative investment limit of £150,000, and the budgeted cost is a mere £50m in year one. It is also subject to state aid approval.

A capital gains tax holiday will be offered for investments made to the SEIS. This will provide for CGT exemption on gains realised on disposal of an asset in 2012/13 and invested through SEIS in the same tax year, giving overall tax relief at up to 78%.

There will also be consultations on relaxing connected person rules for the Enterprise Investment Scheme and anti-avoidance to prevent its general abuse. The £1m investment limit per company for Venture Capital Trusts will be removed to reduce the administrative burden of the scheme.

The above measures will largely be paid for by a freezing of the CGT annual exemption of £10,600 for 2012/13.

 

Conclusion

We were expecting very little in the way of new announcements, and we were not disappointed! Nothing was said on the 50% rate of income tax, statutory residence test or rates and reliefs generally. 

A significant amount of draft legislation is due to be released on Tuesday 6 December (L-Day) for which we will provide a full commentary.