The warmest welcome came for the chancellor’s measures on business rates, although most commentators would have liked to see Osborne go further. They argue that more needs to be done now rather than waiting for the review in 2017.
Business will be pleased that the chancellor has finally acted on business rates bills after years of relentless increases
“Business will be pleased that the chancellor has finally acted on business rates bills after years of relentless increases that sucked the life out of businesses in all parts of the UK,” said British Chambers of Commerce director general John Longworth.
“The measures announced to curb business rate increases are positive, but not strong enough to boost companies’ cash flow and investment. The chancellor should have been bolder, freezing business rates entirely until this pernicious tax can be properly reformed.”
EY’s global head of tax policy Chris Sanger agreed. By spending over £1bn in 2014 on business rates, he said, Osborne had obviously been listening to “the pain” felt by businesses.
“By capping the increase next year at 2%, as well as extending small business relief and introducing a measure targeted at lower rated retail properties, the government has reduced the immediate burden. However, the commitment to a review for change in 2017 is arguably as important for driving growth for businesses in the UK – getting the system to be one that drives entrepreneurship, and investment, rather than a being millstone that constrains business.
“The announcement focuses on options for longer-term administrative reform and many will be arguing that review needs to be both accelerated and more fundamental.”
Chris Barrington, tax partner at Jackson Stephen said, “The chancellor made some promising announcements for small businesses in his Autumn Statement but business owners mustn’t get comfortable. While the economic outlook looks positive, more needs to be done to cut red-tape and encourage further growth - business taxes are still too high. Capping business rate rises at 2% and providing rates relief to small businesses is a good start, but it’s not enough.
“Small businesses are the backbone of the UK economy so Osborne needs to ensure he follows through on his promises and continues to do more to help to our SMEs."
Tim Ward, chief executive of the Quoted Companies Alliance, said, “Increases in the limit to Share Incentive Plan and Save As You Earn plans, simplifying the tax regime for unapproved share schemes and dropping proposed changes to the loans to participators rules will help to fuel the engines of growth – small and mid-size quoted companies – by encouraging further employee participation in the growth of a business.
“However, we believe that the government can do even more to encourage employee share ownership and align employee and management goals in driving growth through reform of capital gains tax for Entrepreneurs’ Relief, by removing the condition that employees must have 5% of voting rights and ordinary share capital in order to qualify. This arbitrary threshold restricts businesses from incentivising most employees and is a brake on growth.”
KPMG’s head of retail David McCorquodale said that rates had become one of the retail industry’s biggest costs and biggest burdens, outpacing rents, revenue growth and curtailing the amount retailers are able to invest back into their business. A major review and overhaul of the whole business rates system – which is no longer fit for purpose – is required now, he said.
“For five years the industry has been overtaken by technology advances and is rapidly moving online. To compete in a global retail environment, British retailers urgently need to make significant investment in IT systems and technology to drive multi-channel, international growth and offer personalisation across all channels. An increased property cost burden hardly helps to keep retailers on the high street.
Imposing the most wide-ranging anti-avoidance package in this Parliament on top of the GAAR will lead to unnecessary uncertainty
“The re-occupation relief and the business rates relief for small retailers is welcome but support for the smaller independents needs to encourage diversity and the growth of small businesses, rather than a subsidy to zombie retailers who are no longer relevant."
David Whiscombe, director of tax at UK200Group member firm Berg Kaprow Lewis, welcomed measures for small businesses, but raised concern about the taxation of corporate partnerships.
He said, “Although there is no single aspect of the Autumn Statement which is massively helpful to SMEs, there are a number of small benefits and “every little helps”. In particular, we like the removal of employers’ NIC on employees aged under 21 and the modest enhancements to tax reliefs for Employee Share Plans.
“The package of Business Rates measures - which had been looking more and more like the government’s Poll Tax moment - are welcome, including the £1,000 discount for small shops and cafes and the 50% relief for first occupation of empty premises. These measures might do something to help our beleaguered high streets."
As far as the package of anti-evasion and avoidance measures are concerned, Neal Todd, a partner in the tax team at international law firm Berwin Leighton Paisner, was annoyed. The latest announcements, he complained, begged the question of why additional reform is needed.
“We already have the general anti-abuse rule in place which was intended precisely to act as a catch-all framework to ensure the spirit as well as the letter of UK tax legislation is obeyed.
“Imposing the most wide-ranging anti-avoidance package in this Parliament on top of the GAAR and so soon after the GAAR was implemented will lead to unnecessary uncertainty about the interplay between various sets of anti-avoidance provisions. It can only further lengthen the UK tax code.”
Concerns were also expressed about the ability of government to bring in £9bn from anti-avoidance measures.
“The strong message that tax avoidance will not be tolerated continues with the already announced anti-avoidance measures expected to collect an additional £9bn, however, this cannot be guaranteed and must be accompanied by a commitment to resourcing within HMRC," said Richard Rose, tax partner at BDO.
“Also announced is a controversial measure that will force taxpayers to pay tax in advance if they dispute the tax treatment of tax schemes with HMRC," he added. "Some will regard this as overstepping the mark and is not fair on taxpayers generally so we can expect a big backlash against this.
Richard Mannion, national tax director at Smith & Williamson, said, “His [the chancellor's] estimate of it bringing in £9bn over the next five years sounds optimistic bearing in mind the work done to stamp out tax evasion and avoidance to date and the receipts already generated.”
Anita Monteith from the ICAEW Tax Faculty agreed, saying “The Marriage Tax Allowance adds further complexity to an already complicated tax system that tax payers struggle to deal with. It also places additional burdens on an over-stretched HMRC whose budget will be cut by a further 5% in 2015/16."
Mazars’ UK head of tax Tim Davies said business should not underestimate the importance of the tax debate.
"It was very interesting to hear the chancellor use the term ‘fair share’ in the Autumn Statement," he said. "Following 12 months of public scrutiny of the tax affairs of big business it really underscores that the clock is ticking ever more loudly on the lazy, old-fashioned, abusive approaches to tax planning. The climate has permanently changed and all businesses need to understand how the tax avoidance debate impacts on their decision making.
"This is not simply about disclosure or even understanding the difference between optimising government incentives and tax avoidance and tax evasion. It is about understanding how it affects their profits, reputation and ability to do business. It is about making properly informed decisions.”
Most agree that George Osborne has gone for a “steady” set of measures that will ensure the government sticks to its long-term plan for reducing the deficit – an objective he stressed several times during his speech – rather than opting for headline-grabbing electoral give-aways.
“This Autumn Statement will be good news for the UK smallest businesses – shopkeepers and entrepreneurs across the country whose growth is critical to long term economic prosperity,” said ICAEW chief executive Michael Izza.
“It will also help young people by encouraging them to acquire the skills they need to succeed in the workplace.”
But he warned that the chancellor would need to keep the economic momentum going. “With earnings growth set to be below inflation for another year, clamping down on rises in energy, fuel and transport costs, will help households and ensure that they begin to feel the benefits of the recovery.”
KPMG’s head of tax policy Chris Morgan thought that, while the Autumn Statement wasn’t quite an early Christmas present, it was certainly not a turkey as far as business was concerned.
“Good news is that there was little tinkering around the edges and some welcome targeted measures to provide relief,” he said. He welcomed in particular the business rates cap with specific reliefs for small retailers, the removal of employers’ National Insurance contributions on workers below the age of 21, an extension of film tax reliefs and some targeted allowances for the oil and gas sector.
This autumn statement will be good new for the UK smallest businesses
However, he added, “It’s a shame that the chancellor again passed up the opportunity to introduce tax relief on capital investment which is a measure that many businesses have called for and is arguably the remaining missing piece in the jigsaw to completely transform our corporation tax regime.”
Mark Saunders, tax director at PwC, was worried about the crackdown on partnerships. “Some businesses have exploited the use of partnerships to avoid NICs and this needs to be tackled.
“At one extreme we've heard of fruit pickers trading as partners making a few pounds of profit per hour, a clear wheeze to avoid NICs and paying the minimum wage. But in some professions, such as the legal sector, there are good commercial reasons why someone has the title of partner without having a real equity stake in the business.”
He said it would be difficult to work out where the dividing line is between what’s legitimate and disguised remuneration. “Today’s changes move the bar much higher than expected. For the many law firms where salaried partners are off the payroll, the tax changes could mean crippling costs.
“It's not uncommon for half or two thirds of a law firm’s partners to be salaried and off payroll,” he warned. “For a mid-tier law firm, the extra NIC bill could easily be over £1m, and across the sector as a whole the costs could run to many tens of millions a year.”
Another measure which drew the attention of commentators was the introduction of capital gains tax on the proceeds of the sale of properties owned by non-residents. While some felt that at least this would bring about a level playing field, others complained that this should have been considered as part of last year’s extensive consultation on the taxation of UK property held by non-resident entities.
There are also concerns that it was yet another indication of creep into taxing the residential sector. As John Cooney, EY’s head of private client tax services, pointed out, “It will be important for the UK’s competitiveness that such overseas investors realise that this is a targeted measure and not the first stage of a cash grab by HM Treasury.”
Michael Izza concluded, "If a single message were to come through for the chancellor from ICAEW, it would be that he needs to continue to walk a very fine line between tackling the fiscal position the UK finds itself in and maintaining the momentum of the economic recovery.
"Today’s Autumn Statement does much to deliver on that but does bring home the fiscal challenges the UK still faces.”