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FFW Tax Partners give their thoughts on the Chancellor's Autumn Statement

The FFW tax partners once again gave their take on the Chancellor’s Autumn Statement to PLC Tax, for publication in their summary of leading practitioners’ views.  Their contributions are set out in The FFW tax partners once again gave their take on the Chancellor’s Autumn Statement to PLC Tax, for publication in their summary of leading practitioners’ views.  Their contributions are set out in full below.

Hartley Foster, Field Fisher Waterhouse LLP

Plus ça change, plus c'est la même chose.

In relation to anti-avoidance, the Government announced in Budget 2013, inter alia: (i) a series of targeted anti-avoidance measures ("TAARs"); (ii) the introduction of a General Anti-Abuse Rule (the "GAAR"); (iii) new rules on Government procurement (which include a requirement for certification of tax compliance by Government suppliers); (iv) a consultation on whether a Tribunal or court decision in favour of HMRC in an avoidance case should have filing consequences for other taxpayers; and (iv) a consultation on the naming and shaming of promoters of tax avoidance schemes.

8 months on, tackling avoidance remains a key theme for the Government. Yet, interestingly, given that it was indicated recently by HMRC that the VAT gap had widened to £12.9billion, there are no proposed new measures in respect of VAT.

TAARs and the GAAR

A new raft of TAARs (that address, inter alia: (i) the allocation of profits by partnerships that have both individuals and non-individuals as members; (ii) companies avoiding corporation tax by shifting their profits to other group companies in the form of payments under a derivative contract; (iii) exploitation of the 75% exemption for credits arising from qualifying loan relationships under the controlled foreign company rules; (iv) exploitation of double tax relief where no foreign tax is ultimately borne; and (v) the use of dual employment contracts whereby UK resident non-UK domiciled individuals avoid employment income tax by carrying out their duties under two employment contracts - one for their UK employment duties and one for their non-UK duties) has been introduced, most of which measures have immediate effect from 5 December 2013. Two changes to the worldwide debt cap regime with the aim of countering avoidance also have been introduced; and other new measures will include legislation to prevent a charity from being entitled to claim charity tax reliefs if one of the main purposes of establishing the charity is tax avoidance.

The GAAR was introduced under Finance Act 2013. A procedural precondition for the application of the GAAR is an officer of HMRC issuing a notice under paragraph 3, Schedule 42, Finance Act 2013 (there is no provision in Finance Act 2013 (or in the Taxes Management Act 1970) that imposes an obligation on a taxpayer to self-assess under the GAAR) setting out, inter alia, the proposed counteraction to the tax arrangements that HMRC consider are abusive. Internal HMRC approval for a paragraph 3 notice being issued must be obtained; and it has been indicated by HMRC that they consider it is unlikely that they will issue more than 2 to 3 notices per year. That the GAAR has not precluded the publication of screeds of anti-avoidance legislation annually (at least), combined with this indication from HMRC, does point to the GAAR being a measure that is focused on counteracting only the most egregious examples of abusive structures, rather than being a "broad spectrum antibiotic". No cases being authorised for counteraction would demonstrate the effectiveness of the GAAR, as a deterrent. But, as has been stated, apocryphally, to be the answer in the 1970s to the question "what is the impact of the French Revolution?" - it is too early to say.


Pillorying, the irretrievably vulgar, 21st century equivalent of the stocks, is a weapon that the Government is turning to increasingly.

The Government has indicated that it intends to introduce legislation in Finance Act 2014 that will enable the naming and shaming of banks that breach the Code of Practice on taxation for banks. The Code, which is voluntary, in essence, obliges banks to ensure that its tax affairs are in accordance with a penumbral anti-avoidance spirit of the law, rather than just its terms. It is intended that the legislation will provide that if the GAAR Advisory Panel has unanimously reached the view that arrangements in which a bank is involved cannot be regarded as a reasonable course of action under the GAAR counteraction procedures then that constitutes a breach of the Code of Practice.

Finance Bill 2014 will implement the proposal, set out in the August 2013 Raising the stakes consultation paper, to introduce new obligations on "high-risk" promoters. In the consultation paper, it was proposed that a promoter having failed to notify a DOTAS scheme via DOTAS or having been the recipient of a formal notice for information or documents could result in that promoter being designated high-risk. One of the consequences of that designation is that clients of such promoters must identify themselves as such to HMRC; the naming and shaming of high-risk promoters that had been proposed does not, however, appear yet. Unless there are significant numbers of schemes that should have been disclosed under DOTAS but have not been, the Autumn Statement itself, arguably, casts doubt on the importance of introducing new obligations on "high-risk" promoters; it is stated that the number of schemes disclosed under DOTAS regime "fell by almost 50% between 2011/12 and 2012/13 ... with only 17 schemes disclosed in the six months to September 2013".

Followers and Payers

The Government has become increasingly concerned that, even when HMRC has succeeded in a case against one user of an avoidance structure, other users ("followers") of the same structure continue to assert that tax is not due. Finance Bill 2014 will give HMRC power to require followers either to amend their tax returns or to face penalties if they pursue appeals on the same structure and are ultimately unsuccessful in the litigation. Following the recent decision of the Supreme Court in Cotter, HMRC also will be given power to issue to followers "pay now" notices that require the payment of the tax in dispute and the Government will consult on the issue of the issuance of pay now notices in a wider range of circumstances.

Graeme Nuttall, Field Fisher Waterhouse LLP and the Government's Independent Adviser on employee ownership, author of Sharing Success: The Nuttall Review of Employee Ownership

The Government has shown again its commitment to promoting employee ownership, as defined in the Nuttall Review. The Autumn Statement sets out major tax exemptions to promote the employee ownership business model and, in particular, to grow the number of employee trust owned companies. Many professionals are still unaware of the concept of employee ownership and what it offers to businesses at every stage in the business life cycle and, in particular, as a succession solution. These new tax exemptions will help overcome this obstacle.

The January 2012 report "All of our business" (EOA) contrasted the satisfaction Hugh Facey gets from the employee ownership succession solution at Gripple Limited with the fortunes of another business which was sold to private equity and where its former owner saw decades of business relationships unravel and the brand's reputation deteriorate. Notwithstanding all the measures to raise awareness of employee ownership over the last two years, as reported by Practical Law, and the importance of encouraging a diverse range of business models, some still think in very narrow terms regarding share plans. Not this Government.

As Chancellor, George Osborne, stated the Autumn Statement sets out "major reforms to encourage employee ownership of the kind that makes John Lewis such a success" by:

  • confirming details of the two new tax exemptions to support employee trust ownership on which HM Treasury had already consulted, and

  • announcing an extension to the existing inheritance tax relief for share transfer to EBTs.

Draft legislation on all three measures was published on 10 December 2013 together with further information on the proposed changes including the Government's response to the consultation. There are some important points of detail to consider carefully but overall these exemptions send a powerful message to professional advisers that the employee ownership model deserves careful consideration:

  • the CGT exemption, available from April 2014 is unlimited. This applies to disposals of shares that result in a controlling interest in a company being held by a qualifying EBT (an employee ownership trust or EOT); and

  • from October 2014, bonus payments made to employees of companies which are controlled by an EOT will be exempt from income tax up to a cap of £3,600 per tax year. This is the same as the increased SIP free shares award limit. There will be employer's and employee's NICs to pay on these bonuses but probably better this than a much lower income tax cap.

As HM Treasury says in its response to the recent consultation "introduction of the CGT relief will mean that advisers will be obliged to mention to the owners of companies that selling their shares into an EOT may be tax advantaged…. These exemptions will make indirect employee ownership an attractive proposition for those who are looking to dispose of a controlling interest in their company". The Gripple Limited employee ownership model involves direct ownership of shares by employees. The Autumn Statement also supports this model of employee ownership with its long overdue increases in the individual limits under the all employee SAYE and SIP share plans.

This may be the decade in which employee ownership enters the mainstream of the UK economy.

Andrew Prowse, Field Fisher Waterhouse LLP

I have for years patiently explained to those who are not tax practitioners that tax is not boring. I hope they didn't read the Autumn Statement this year! After several years of major change, perhaps we were due a relatively quiet year.

Of course, there was the usual smattering of anti-avoidance measures, some against specific (now historic) schemes, some more general and potentially more concerning, such as reform of the partnership tax rules, the introduction of a requirement to concede cases on schemes relying on points of law which have been defeated in the courts in other like schemes and of "pay now" notices (with a consultation on extending this concept). Whilst understandable, these developments must be implemented carefully to ensure fairness.

There were positive developments for particular sectors, notably the oil and gas sector and the media sector.

For owner managed businesses, it was good to see confirmation that the close company loans to participators are essentially to be left alone, for now. Also, the continued enhancement of the UK's share incentives rules is to be welcomed, as is the development and encouragement of employee-ownership, which is gaining traction.

Another trend, evident again this year, is the impact of the information age on the tax regime. FATCA, the US government's fiendishly complex effort to get foreign financial institutions to disclose information on the offshore assets of US taxpayers, and the proliferation of similar international reporting rules and information exchange agreements, in which the UK has played a key role, will give tax authorities increasingly voluminous information. What will they do with it all? The Autumn Statement cryptically announced that HMRC will take action to be ready to exploit the data received.

In a similar vein, there was confirmation that a publicly accessible central register of the beneficial ownership of companies will be established to prevent tax evasion and other wrongdoing. Whether it will achieve that aim is questionable, and it should be remembered that a desire for confidentiality is different from wanting to evade tax.

The Autumn Statement wasn't so boring after all, perhaps.

Nick Beecham, Field Fisher Waterhouse LLP

Non-UK residents owning residential property in the UK will be relieved that the extension of capital gains tax to them will not take place until April 2015, and then only on future gains.

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