Global Tax Alert | 6 December 2013

UK Chancellor issues Autumn Statement

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Executive summary

On 5 December 2013, the UK Chancellor delivered his Autumn Statement, stressing the need to secure the economy for the long-term. As part of that goal, the Chancellor set out a number of economic reforms with the aim of bringing down the deficit. Included in these were proposals to cut taxes on businesses and help British business compete on the world stage. He was clear, however, that having sound public finances requires the Government to collect the taxes that are due. To that end, the Chancellor announced that HMRC (HM Revenue & Customs) will be exempt from the proposed spending cuts and set out a package of measures to tackle tax avoidance, tax evasion, fraud and error. This package of measures is forecast to raise more than £9 billion over the next five years.

At a corporate level, the Government reiterated its commitment to a competitive 20% corporate tax rate. Alongside the Autumn Statement, the Treasury published its report of the dynamic impacts of its corporation tax cuts since 2010, highlighting the returns to the economy of these cuts. However, in raising the bank levy to 0.156%, he made it clear that the banks should play their part in supporting the country in recovery. There are new incentives to encourage investment in shale gas, to expand film tax relief, encourage employee ownership and to remove employer national insurance contributions on employees under 21, up to the upper earnings limit. As expected the Chancellor announced a cap on the rise in business rates to 2% (as well as introducing a temporary reoccupation relief and promising longer term reform of the business rates system).

The anti-avoidance measures, which apply across a range of taxes, address topics such as partnerships, offshore intermediaries, controlled foreign companies, the worldwide debt cap and the use of derivatives. The Chancellor also confirmed the UK's commitment to the OECD project on base erosion and profit shifting while introducing a new, limited power to impose penalties and require taxpayers to pay their taxes upfront, where they are relying on a tax arrangement, which has been shown not to work in the Courts.

More detail on the corporate tax developments and other key measures is discussed below.

Detailed discussion

Corporate taxes

As previously enacted in Finance Act 2013, the main rate of corporation tax will be cut to 20% from April 2015. This follows a series of reductions that have taken the headline rate of corporation tax down from 28% at the start of the five year plan outlined by the present Government in 2010. The Treasury has also published today its economic modelling of the dynamic impacts of its corporation tax cuts since 2010. The modelling in the report suggests that by 2016-17, when all the cuts have been implemented, they will constitute savings to business of £7.8 billion a year and will increase investment by between 2.5% and 4.5% in the long term.


There are a number of specific corporation tax anti-avoidance measures. These include changes to the UK's controlled foreign companies rules to prevent groups which move debt which would be taxable in the UK into an offshore finance company from benefiting from the partial exemption regime. The worldwide debt cap rules, which can limit UK relief for interest expenditure, have been amended to prevent groups obtaining more tax relief by including a company without share capital in the group.

The Government has also announced measures targeting certain specific transactions where deductions are claimed for payments made to another group company under a derivative which is linked to the profits of another group company. There are also changes to the amount of UK double tax relief that can be claimed against profits from debt or intangible assets.

Business rates

As was widely predicted, the Government announced that it will cap the RPI increase in business rates at 2% for one year from 1 April 2014 and extend the doubling of small business rate relief for a further year from that date. However, it went further and announced a business rates discount of £1,000 for retail and food and drink premises with a rateable value below £50,000 for two years from 1 April 2014 and a 50% business rates relief for 18 months for businesses that between April 2014 and March 2016 move into retail premises which have been empty for a year or more (these reliefs will be subject to state aid limits). From April 2014, the Government will allow businesses to pay business rates over 12 months rather than 10 months.

In the longer term the Government will consult on reforms to the business rates appeals process, committing to reduce the current backlog of appeals before July 2015. It will also publish a discussion paper in spring 2014 considering longer-term reforms to business rates administration which maintain the aggregate tax yield.


The full rate of the bank levy is to increase to 0.156% from 1 January 2014 and, following a 2013 review, its base will be broadened through a series of specific measures.

Following consultation, the Government has confirmed that it will introduce legislation in Finance Bill 2014 obliging HMRC to publish an annual report on the operation of the Code of Practice on Taxation for Banks. A list of banks and building societies which have unconditionally adopted the Code as at 5 December has now been published.

Oil and gas

The Government has confirmed, following consultation with industry, the introduction of new fiscal measures to promote investment in the UK onshore oil and gas industry, and, in particular, incentivize early investment in the exploration for shale gas in the UK.

The Government will also consult with industry following its announcement of a new cap on the level of deductions for intra-group leasing payments for large offshore oil and gas bareboat charters, and introduce a new ring fence to protect the resulting revenue.

Other measures

The Government has been consulting on modernizing the taxation of corporate debt and derivative contracts. The consultation is continuing, but in the interim it has announced some limited changes to existing provisions relating to the use of collective investment schemes

which hold primarily debt or derivatives. Legislation will also be introduced to clarify and rationalize the taxation of corporate partners where loan relationships and derivative contracts are held by a partnership.

The current corporation tax film relief is to be extended and the Government will consult on a limited tax relief for commercial theater production.

The rules which can restrict the availability of relief for corporation tax trading losses when companies change ownership are to be relaxed in certain limited circumstances.

Employment taxes

National insurance measures

From 6 April 2015, employers will no longer be required to pay Class 1 secondary national insurance contributions (NICs) on earnings paid up to the upper earnings limit (UEL), which is £42,285 a year (£813 per week) in 2015-16, to any employee under the age of 21. This proposal will be included in the NICs Bill currently before Parliament and will make it less expensive for businesses to employ young people.

Employee ownership

Following recent consultation, three new tax reliefs will be introduced in Finance Bill 2014 to promote indirect employee ownership;

  • From 6 April 2014, disposals of a controlling interest of shares in a company held by an employee ownership trust will be relieved from capital gains tax.
  • Subject to conditions, transfers of shares and assets to employee ownership trusts will be exempt from inheritance tax.
  • Bonus payments made to employees of indirectly employee-owned companies controlled by an employee ownership trust, will be exempt from income tax. The bonus exemption will be capped at £3,600 per annum, per employee and will be effective from October 2014.


The Government is proposing to prevent onshore employment intermediaries being used for tax avoidance. Following consultation, the Government's intention is to amend existing legislation in Finance Bill 2014 so that companies cannot use employment intermediaries to disguise employment as self-employment and so deny employment rights to workers and avoid employment taxes. These changes are due to take effect from April 2014.

The Government has put forward proposals in relation to dual employment contracts that are aimed at tackling perceived avoidance whereby some high earning, non-domiciled individuals benefit from splitting their employments and moving employment income offshore where it is not taxable in the UK. Legislation will be introduced in Finance Bill 2014 to prevent the use of such “dual contracts.” The measure announced is a targeted approach against contrived avoidance in this area and draft legislation will be published in January for technical consultation. It will be legislated for in Finance Bill 2014 and will take effect from the beginning of the 2014-15 tax year.

Personal taxes

Capital gains tax

The biggest announcements for individuals concerned capital gains tax (CGT). CGT will be extended to nonresident individuals in respect of UK residential property. CGT was extended in Finance Act 2013 to nonresident companies owning residential property valued at over £2 million and this measure will extend it still further. It is not clear to what extent it will apply to nonresident companies and trusts. Nonresidents will be subject to CGT on UK residential property from April 2015. The document published today uses the phrase “future gains” which suggests there may be some form of re-basing available for nonresidents who already hold residential property, although there has been no confirmation of this. A detailed consultation is expected in early 2014.

Income tax

Following a consultation published in May 2013, the Autumn Statement confirms there will be some changes to the taxation of partnerships. New rules will be introduced for partnerships with “mixed membership” (i.e., both corporate and individual members). These rules will operate to reallocate profits where partnership profits are allocated to a non-individual partner in circumstances where an individual member may later benefit from those profits. Losses may also be reallocated where partnership losses are allocated to an individual partner, instead of a non-individual partner, to enable the individual to access certain loss reliefs. The changes to partnerships will take effect from 6 April 2014 with the exception of anti-avoidance rules concerning tax-motivated profit allocations which will come into force from 5 December 2013.

The May consultation also proposed other changes to partnership tax, for example measures to ensure that the members of a limited liability partnership will no longer be automatically treated as partners (i.e., self-employed). If the proposals are implemented, such individuals would need to consider their employment position under general principles (this may mean that some partners will begin to be treated as employees). No specific announcement has been made in the Autumn Statement regarding these further changes, but further details can be expected either at the time of the draft Finance Bill (10 December) or in the New Year.

There was also confirmation of a previously announced measure to prevent individuals claiming “compensating adjustments” in circumstances where transfer pricing adjustments have been made to corporate profits, for example, in respect of loans from participators on non-market terms or payments to service companies by partnerships.

Tax administration and other anti-avoidance measures

Following HMRC's consultation over the summer Raising the Stakes on Tax Avoidance, a new information disclosure and penalty regime will be introduced in the Finance Bill for ”high risk promoters” of tax avoidance schemes. Clients of such promoters will also be required to identify themselves to HMRC.

Additionally, powers will be introduced in the Finance Bill to require taxpayers to amend their tax returns in cases where a tax avoidance scheme they have used has been defeated in another party's litigation, and to impose a new penalty if such taxpayers pursue litigation on the same scheme and are unsuccessful.

A new power will also be introduced to enable ”pay now” notices to be issued to taxpayers using tax avoidance schemes that have been successfully litigated by HMRC, and the Government will consult on the scope for widening the criteria for such notices.

In early 2014 HMRC will launch a project to ensure it is ready to exploit the data that is expected to be generated by the automatic information exchange agreements that the UK has signed with a number of territories, and in, Budget 2014, HMRC intends to consult on a range of enhanced sanctions against taxpayers hiding money offshore.

Following consultation, the Government will also proceed with the next steps to make aggregated and anonymized HMRC data available for wider public benefit, publishing draft legislation for further consultation in early 2014. The Government will continue work on proposals to release VAT registration data, announcing decisions in early 2014.

Next steps

The intention is that the draft Finance Bill 2014 clauses will be published on 10 December. An Alert will provide a summary of key developments in both the draft Finance Bill clauses and the Government's summaries of responses to consultations, which are expected to be published at the same time.

For additional information with respect to this Alert, please contact the following:

Legal Ernst & Young LLP (United Kingdom), London
  • Claire Hooper
    +44 20 7951 2486
  • Chris Sanger
    +44 20 7951 0150
Ernst & Young LLP, UK Tax Desk, New York
  • Sarah Churton
    +1 212 773 5994

EYG no. CM4026