Autumn Statement and Spending Review 2015: ICAS reaction

Houses of Parliament
By ICAS Budget team

25 November 2015

ICAS accountancy experts provide their analysis on key aspects of Chancellor George Osborne’s Autumn Statement and Spending Review 2015.

Direction of travel with taxation

Comments by Charlotte Barbour, Director of Taxation

The measures announced would on first appearances seem to be a mixed bag: it’s difficult to discern a clear direction of travel and ICAS continues to call for a tax road map which outlines the overall tax strategy over the course of this parliament.

HMRC savings and reorganisation

Comments by Charlotte Barbour, Director of Taxation

We understand the desire to streamline and create a more efficient tax service; our concerns centre on service levels whilst the change is undertaken, and concerns also remain regarding those who are digitally excluded. ICAS does not support mandatory ‘online everything’  in the tax system.

Tax and devolution

Comments by Anne-Marie Roberts, Head of Taxation, Scottish and Indirect Taxes

The Autumn Statement includes a range of devolution proposals including the powers to set corporation tax rates in the Northern Ireland Assembly and income tax powers for the Welsh Assembly.

The devolution of powers should be dependent on the agreement of the underlying fiscal framework. Without the fiscal framework, devolving tax powers is like trying to hang out the washing with no washing line.

It is vital that any devolution settlements are clear and transparent to both experts and the public so that politicians can be made accountable for their decisions.

Pensions

Comments by Christine Scott, Assistant Director, Charities and Pensions

The Chancellor reasserted the Government’s commitment to the pensions triple lock which is to be kept ‘affordable’ through five yearly reviews of the state pension age, to take account of projected increases in life expectancy.

The basic state pension is to increase by £3.35 per week to £119.30 per week, the largest increase for 15 years, while the rate for the new single-tier state pension is to be set at £155.65 per week.

The Government has come under fire for not communicating sufficiently clearly about who will be entitled to the new single tier state pension, when it is introduced from April 2016, and is taking steps to address this issue, starting with the provision of some key facts on its website.

Following the Summer Budget, HM Treasury rushed out a consultation paper ‘Strengthening the incentive to save’, asking for views on the current model of pensions taxation. This included consideration of the removal of tax relief from pension contributions and exempting retirement income from taxation instead: an approach not supported by ICAS and most pensions industry commentators.

There was silence in today’s Autumn Statement about the consultation results with the announcement of any changes to the current model of pensions taxation expected in the 2016 Budget.

It is also worth noting that increases in auto-enrolled pension contributions are to be aligned with the tax year. While this is a welcome simplification for employers, for some employees this could mean that lower contributions may now be made into their pension pots for a number of months. However, the implementation of the National Living Wage from April 2016 will provide an immediate and ongoing boost to the pension pots of those currently on the minimum wage and being auto-enrolled into a pension scheme.

VAT and the public sector

Comments by Anne-Marie Roberts, Head of Taxation, Scottish and Indirect Taxes

The Chancellor announced a policy to integrate and devolve health and social care, and indicated that Government will not direct how this aim is delivered.  Changes to the delivery of public services across the UK will mean that organisations with different VAT status work together – and may result in services being transferred from the NHS or local government to charities and third sector bodies.  Public sector organisations are split into three types for VAT in the UK:

  • Local authorities and similar organisations (including the BBC)  - these organisations can recover all VAT incurred on activities related to the non-business functions of the organisation.
  • Government departments and the NHS, and associated organisations - these organisations can recover input VAT in certain circumstances but they cannot recover VAT on non-business activities.
  • Other public sector organisations – these are organisations that do not have any specific provisions that allow them to recover VAT on their activities which are for the public good.  These organisations use the standard income method to split their activities between business and non-business, and operate an appropriate partial exemption method to determine what input tax can be recovered. Charities fall into this category.

ICAS has noted that the differences in VAT recovery act as a disincentive to implement new and innovative service delivery models across the public sector. The Treasury should address the VAT issues that these changes will create upfront so that public funds are spent on delivering public services.

Sporting testimonials

By Susan Cattell, Head of Taxation (England and Wales)

Following the consultation earlier this year the tax treatment of income from sporting testimonials will be changed.  From 6 April, 2017, all income from sporting testimonials and benefit matches for employed sportspeople will be liable to income tax. However, an exemption of up to £50,000 will be introduced for income from sporting testimonials that are not contractual or customary.

In its response to the consultation, ICAS supported the introduction of an exempt amount, as a sensible option to help protect lower paid sportspeople and those whose careers have been ended by injury.  It should also help to provide some certainty on the tax treatment of testimonial income below the £50,000 limit as long as it does not arise from a sportsperson’s contract and meets any other conditions which will be set out in the forthcoming legislation.

The new treatment and exemption will apply where the sporting testimonial is granted or awarded on or after 25 November, 2015 and only to events that take place after 5 April, 2017.

Topics

  • Tax
  • Pensions
  • Business
  • Accountancy

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