4G and Swiss tax evasion proceeds finance tax cuts
The Autumn Statement produced mainly helpful news for business. Companies will be pleased with the 1% cut in corporation tax to 21% from 2014. The two year increase in the annual investment allowance to £250,000 is valuable, but confusing to apply, as the allowance goes up from £25,000 to £250,000 on 1 January 2013 and then down again in 2015. The announcement of the 25% creative industries tax credit is excellent and helps support sectors where the UK has a strong presence, but where there had been economic incentives to move activity elsewhere. The decision not to proceed with changes to the IR35 rules, or to introduce a new 'controlling person test will also be welcomed. The Government will also review the use of offshore intermediaries, which claim to avoid UK NIC.
The pension tax relief changes will be less welcome, although they had been widely trailed. The cut in the annual allowance to £40,000 in 2014-15 will affect several hundred thousand people, including those in the public sector - and the cut in the lifetime allowance to £1.25 million reduces by about £15,000 the pension that can be paid without a special tax levy. There will be protection for those with current pension savings of £1.5 million and consultation on extending that protection to those with £1.25 million in pension savings. All other aspects of the current rules - including the ability of defined benefit funds to bear the tax charge - remain unchanged.
The most costly tax relief is the decision to cancel the planned 3p per litre increase in fuel duty. This is worth about £1 per week for the average motorist, but costs £1.6 billion per annum.
The Coalition Government's flagship personal allowance policy receives another boost, with an increase in the personal allowance to £9,440 from 6 April 2013. This will reduce the impact of the earlier decision to withdraw the higher age allowance for those reaching 65 from April 2013. This benefit will flow through to higher rate taxpayers, but the increase in the higher rate tax threshold and the capital gains tax exempt amount will be kept at 1% for 2014-15 and 2015-16.
The two biggest numbers in the statement are the expected £3.5 billion proceeds from the 4G spectrum auction and the confirmation by the Office of Budget Responsibility that they accept the Treasury estimate of a £5 billion return from the Swiss tax evasion agreement. These amounts finance the fuel duty and personal allowance changes.
There was no word on the Government's response to various measures being consulted on, including the income tax reliefs cap; statutory residence rules; the annual charge on high value residential property. These will no doubt arrive by 11 December, when draft Finance Bill clauses are released.