Old Mill’s reaction to the Autumn Statement

The Chancellor had already shown last year that he was determined that the Autumn statement would not be a ‘second budget’. This year he reaffirmed this by offering up very little new – indeed very little at all.

The main thrust of his talk was around the current dire economic outlook. What the pain is now and what the pain is likely to be over the coming years. The big news being that they have admitted that they are not going to be able to meet their big goal of removing ‘structural deficit’ by the time of the next election.

This is at least in part due to the failure to meet growth pedictions – which were indeed reduced to negligible for the whole life of this parliament. However, by sticking to ‘Plan A’ they seem to have precluded actually doing anything significant to change that outlook, despite some pundits feeling that our success in controlling the deficit compared to other economies should be giving us some room for constructive manoeuvre.

Indeed they did do some tinkering at the edges – to encourage business and youth employment, and this has to be very much welcomed – but it looks to be a far too minimal amount. Let us hope there will be more to come in the main budget in the spring.

Key Measures announced in the Autumn Statement, detail to follow in draft legislation published on 6 December 2011

Research and Development

Plans to introduce an ‘above the line’ tax credit in 2013 to encourage Research and Development (R&D) activity by larger companies. The Government will consult on the detail at Budget 2012 and will ensure that smaller company (SME) R&D incentives are not reduced as a result of this change. This builds on measures at Budget 2011 to increase the generosity and accessibility of R&D tax credits for SMEs.

At Budget 2011 the Government cut the main rate of corporation tax to 26 per cent, and by 2014 it will reach 23 per cent – the lowest rate in the G7 countries and one of the lowest rates in the G20.

Following consultation this summer, the Government will publish on 6 December 2011 further details of the Patent Box and of its reform of the Controlled Foreign Company rules.

CGT

The Government will freeze the annual exempt amount for capital gains tax at £10,600 for 2012-13.

Enterprise Investment Scheme, Venture Capital Trusts and Seed Enterprise

The Government announced at Budget 2011 that it would consult on options to provide new support for seed investment, simplify the Enterprise Investment Scheme (EIS) and refocus both EIS and Venture Capital Trusts (VCTs) to ensure they are targeted at genuine risk capital investments.

As a result of the consultation the Government will introduce the new Seed Enterprise Investment Scheme (SEIS) to encourage investment in new start-up companies. SEIS will provide income tax relief of 50 per cent for individuals who invest in shares in qualifying companies, with an annual investment limit for individuals of £100,000 and cumulative investment limit for companies of £150,000.

In addition, the Government will offer a capital gains tax holiday for investments made into the new scheme. This will provide for a capital gains tax exemption on gains realised on disposal of an asset in 2012-13 and invested through SEIS in the same year.

The Government will also simplify the EIS by relaxing the connected person rules and the definition of shares that qualify for relief. The Government will tighten the focus of the schemes by introducing a new test to exclude companies set up for the purpose of accessing relief, exclude acquisition of shares in another company and exclude investment in Feed-in-Tariffs businesses. In addition to these changes that were consulted on, the Government will remove the £1 million investment limit per company for VCTs to reduce the administrative burdens of the scheme.

£40 billion ‘credit easing’ scheme

Although the details of how it will operate are still vague the most significant introduction to help businesses is a £40bn “credit easing” scheme to make it simpler to underwrite bank loans to small firms.

Small businesses with an annual turnover of less than £50m qualify for the scheme and it is speculated that this will cut average interest rates by about 1% for those firms qualifying.

Capital allowances: Enterprise Zones

Enterprise Zones in six assisted areas will qualify for enhanced capital allowances. In these areas, 100 per cent allowances will be available for plant and machinery investment incurred between April 2012 and March 2017. Discussions continue with the devolved administrations regarding enhanced capital allowances in their Enterprise Zones.

Small business rate relief holiday

The Government will extend the small business rate relief holiday for a further six months from 1 October 2012.

Business rate deferral scheme 2012-13

The Government will give businesses the opportunity to defer 60 per cent of the increase in their 2012-13 business rate bills as a result of the Retail Prices Index uprating, to be repaid equally across the following two years.

Gifts of pre-eminent objects

At Budget 2011, the Government announced that it would consult on proposals to encourage donations of pre-eminent works of art or historical objects to the nation in return for a tax reduction. Following consultation, the Government will legislate to enable individuals to receive a reduction in their income tax or capital gains tax liabilities, and companies to receive a reduction in their corporation tax liabilities, in return for donating pre-eminent objects under this new scheme. Total tax reductions under this scheme, and taxes offset under the existing inheritance tax Acceptance in Lieu scheme, will be subject to an increased annual limit of £30 million a year overall.

VAT Headlines

LVCR

As previously announced, from 1 April 2012 the VAT relief for imports of low value items (under £15) will be removed for goods coming from theChannel Islands. Previously HMRC reduced the limit from £18, warning that it would be removed entirely if its exploitation did not cease. Clearly it has not and HMRC felt compelled to take further action.

The change is targeted at those large retailers who have shifted operations to theChannel Islandsto exploit this relief. Much concern has since been raised by those smallerUKretailers unable to follow suit and who are consequently being priced out of the market; they will no doubt welcome these changes as it should level the playing field. Some commentators have suggested that removing the relief for only theChannel Islands- and not other locations – may be challengeable. And some affected businesses may perhaps try to negate its impact of this change by routing goods via other member states, but until the draft legislation is published it remains to be seen whether this will prove successful, and for how long.

VAT Cost Sharing Exemption

This VAT exemption already exists under EU law, but to date has not been implemented in theUK. Following pressure from the EU a consultation exercise was announced in Budget 2011, and the Autumn Statement contains confirmation that it will indeed be implemented.

In essence the exemption allows VAT averse bodies to form an independent group in order to reduce VAT charges that otherwise would arise on ‘directly necessary’ shared costs. The exemption will be of particular interest to the Charity sector. Again further details to follow.

Auto enrolment Compulsory Pension saving delayed for small firms

New pension rules that will force small companies to pay into their employee’s pensions have been delayed due to fears it will damage the economy.

Automatic enrolment into pensions will begin next year to ensure larger employers provide good quality pensions and make contributions for their staff. This will be rolled out to all firms in due course, but for companies with less than 50 employees this must now be in place by May 2015, more than a year later than originally planned for April 2014.

This news will be welcomed by smaller businesses relieved that the prospect of not only extra costs but also unwelcomed extra red tape has been pushed back.

Infrastructure investment

Also announced to coincide with the statement was news of a £30 billion investment in infrastructure. Projects which will help future development of the economy. £5 billion of this will come from the government but they are expecting the rest to be raised from institutional investors such as pension funds. In the south west the two projects identified are a badly needed relief road in Torbay, the Kinckerswell bypass, and a relief road for the south west ofBristol.

The duelling of the entire length of the A303 which had been hoped for by many local business leaders and politicians is not on the list.

If you have any questions about any of the comments please don’t hesitate to call one of our Tax Team or your usual Old Mill contact.