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Although it was mainly concerned with public expenditure plans for the coming year, the autumn statement by the UK Chancellor of the Exchequer George Osborne on November 25 has also brought some tax changes and other announcements of interest to the asset finance market.

The economic context is one where the latest forecasts project continued annual growth of some 2.4% in each of the next two years. The resulting tax revenue projections have allowed the Chancellor to ease some of the spending cuts proposed four months ago, while still planning to eliminate the public sector deficit by the 2019/20 fiscal year.

The annual deficit is still at a substantial level currently. However, the forecast for economic growth is such that national debt as a proportion of gross domestic product (GDP) – having doubled over the period since the “credit crunch” crisis of 2008 - is now claimed to have peaked at around 84%, with small reductions projected for the coming years.

Moves on tax compliance

Among a number of moves against tax avoidance, for enactment in the 2016 Finance Bill, it was announced that there will be legislation to counter two specific techniques involving capital allowances (CAs) and leasing. One will prevent taxpayers from artificially lowering the disposal value of plant and machinery for capital allowances purposes. Another will provide that any payment received for agreeing to take responsibility for tax deductible lease related payments will be taxed as income.

These changes will be made retroactive to November 25 2015, the date of the autumn statement. Draft Finance Bill clauses will not be available until December 9.

The long term annual revenue effect of these moves is estimated at £20 million, implying perhaps that a few substantial tax planning schemes are being targeted.

On the broader business sector front there will be new civil penalties against taxpayers who “persistently enter into tax avoidance schemes that are defeated [in the courts] by HM Revenue & Customs”. These will include a surcharge on those whose latest return is inaccurate due to use of a defeated scheme; and, for those deemed to “persistently abuse reliefs”, disallowance or other restrictions on access to certain tax reliefs for a period.

There will also be a new penalty of an additional 60% of the tax charged, in respect of avoidance schemes that are successfully challenged under the new general anti-abuse rule (GAAR). This kind of penalty could create uncertainty in UK taxation, by penalizing the use of tax planning techniques that appeared to be lawful prior to a challenge.

Whether such fears would be warranted will of course depend on the future extent of use of GAAR powers by HMRC, and the pattern of relevant court rulings.

The next Finance Bill will also create a new criminal offence for corporate taxpayers who “fail to prevent their agents” from criminally facilitating unlawful tax evasion by either an individual or another corporate entity. This is perhaps something of which all players in financial services will need to be mindful, if only because of the variety and occasional complexity of their relationships with third parties.

Other tax changes

The Chancellor announced that the government will be consulting on the details of its moves to restrict the bank levy (essentially a tax on wholesale funding by major UK banks) to UK operations, in place of its present base of global operations of UK based banks. The principle of this change was announced in the Chancellor’s July statement earlier this year. It is due to take effect from the start of 2021.

It was also announced that a separate devolved rate of corporation tax (CT) is to go ahead for Northern Ireland, subject to satisfactory financial arrangements for the Northern Ireland Executive following the resolution of a recent budgetary impasse in the Northern Ireland Assembly. The parties in the Assembly are agreed in principle on a proposed regional CT rate of 12.5%, which would match the low tax rate of the Irish Republic.

This change will clearly encourage the location of corporate business activities in Northern Ireland. However, by requiring UK taxable income to be attributed as between Northern Ireland and the remainder of the UK, it will add some complexity to the tax affairs of most UK asset finance companies and some of their larger customers.

The current 3% surcharge for diesel cars, within the benefit-in-kind income tax charge on company car users, will now be continued until 2021. Previously it had been proposed to end it from April next year. This move perhaps reflects the heightened concerns recently on diesel car emissions.

The Chancellor announced the creation of 18 new enterprise zones (EZs) in England, together with territorial extensions to eight of the 24 existing EZs. Businesses located in these areas receive a variable package of fiscal incentives, including in some cases enhanced CAs.

These enhanced CAs are not, however, available to leasing companies. Their availability where relevant will therefore generally militate against the use of finance or operating lease finance for plant and machinery, although it would not disadvantage the use of hire purchase or conditional sale facilities where it is the customer who claims CAs.

Credit reference agencies

Among the good news, the Chancellor has confirmed moves that may help the credit reference process in asset finance. The three major credit reference agencies (CRA) (Experian, Equifax and CreditSafe) will be designated under the Small and Medium Sized Business (Credit Information) Regulations 2015. These CRAs will receive SME credit data from designated banks and will be required to give finance providers equal access to this information.