UK: See Both Sides: Deloitte's Coverage Of Autumn Statement 2016

Last Updated: 24 November 2016
Article by Deloitte LLP

Most Read Contributor in UK, August 2017


Twitter word cloud

The most popular phrases tweeted during Philip Hammond's 2016 Autumn Statement speech.

Autumn Statement speech word cloud

The most popular phrases during Philip Hammond's 2016 Autumn Statement speech.


Authorised investment funds – dividend distributions

The measure

Following several consultations, it was announced today that the government will modernise the corporate streaming rules in a way which allows exempt investors, such as pension funds, to obtain credit for tax suffered at the level of the authorised investment fund.

Who will be affected?

Exempt investors such as pension funds.


Proposals will be published in draft secondary legislation in early 2017.

Our view

The preservation of some form of corporate streaming will be welcomed by life companies writing pension business, as well as managers marketing such funds to these investors.

Company car tax bands and rates

The measure

The government has announced the introduction of new lower bands for the lowest emitting cars ('ULEVs'). The appropriate percentages will be:

  • zero emission cars: 2%;
  • cars with CO2 emissions between 1g/km and 50g/km: range from 2-14%, depending on the number of zero- emission miles the vehicle can travel.

The measure also increases appropriate percentages by 1% to a maximum value of 37% for cars with CO2 emissions of 90g/km and above.

Who will be affected?

Employers and individuals participating in company car schemes.


The measure will take effect from April 2020.

Our view

The announcement regarding the carve out for ULEVs from the wider salary sacrifice reform is welcome. From 2020, the tax incentives for selecting this type of vehicle increase.

Hidden economy

The measure

HMRC's data-gathering powers will be extended to include money service businesses in order to help identify those operating in the hidden economy.

Following consultation, the government will consider the case for making access to licences or services for businesses conditional on them being registered for tax.

Who will be affected?

Entities that provide money transmission, cheque cashing or currency exchange services, and those who use them.


The Exchequer impact of the extended data gathering powers comes in from 2018-19. Further details will be set out in Budget 2017.

Our view

This is an extension of the powers to gather data from online market places and electronic payment providers that were announced in Budget 2016.

The extended data collection powers will increase the compliance burden for money service businesses.

Hybrid mismatch arrangements

The measure

The government is issuing a technical note in relation to legislation that was passed as part of the Finance Act 2016, concerning the new hybrid mismatch regime.

Following consultation with stakeholders, it was agreed that further technical modifications were required in two areas of the legislation. These were with regard to financial sector timing claims and the rules concerning deductions for amortisation.

The technical note will set out the detail of the changes required and will be published on 5 December 2016. Corresponding legislation will be introduced in Finance Bill 2017.

Who will be affected?

Companies with structures involving hybrid mismatch arrangements.


The changes will take effect from 1 January 2017.

Our view

The hybrid mismatch legislation is new and so technical modifications are not unexpected.

Interest deductibility

The measure

The government has confirmed its previously stated intention to introduce rules limiting the tax deductions that large groups can claim for their UK interest expense. This represents the UK implementation of the recommendations in Action 4 of the OECD's Base Erosion and Profit Shifting project.

The proposal is that interest deductions will be restricted where a group has net interest expense of more than £2 million per annum in the UK and net interest expense in the UK exceed 30% of UK tax EBITDA. This is subject to a further test of whether the group's net interest to earnings ratio in the UK exceeds that of the worldwide group.

The government has indicated the proposals will protect investment in public benefit infrastructure, and that banking and insurance groups will be subject to the rules in the same way as groups in other industry sectors.

Further details including draft legislation are expected to follow on 5 December 2016.

Who will be affected?

The measure is aimed at large corporate groups. It could impact UK parented multinationals and foreign parented multinationals, if in either case they bear significant net interest expenses in the UK.


The rules will take effect in April 2017.

Our view

The intention to enact these rules was previously announced and a consultation process has been undertaken concerning the detailed design of the rules. The commencement date of April 2017 is in line with previous statements and so is not a surprise, notwithstanding that some representations during the consultation process requested a deferral.

Museums and galleries tax relief

The measure

Following consultation, the proposed museums and galleries tax relief will be extended to permanent exhibitions, but qualifying expenditure will be capped at £500,000 per exhibition.

The new relief will follow the same model as the existing creative industries tax reliefs but will include a sunset clause meaning that it will expire in April 2022 if not renewed.

The rate of relief will be set at 25% of qualifying expenditure for touring exhibitions and 20% for non-touring exhibitions – the same rates as theatre tax relief.

Who will be affected?

The relief is expected to apply to museums and galleries that are subject to corporation tax and operating on a not-for-profit basis, including trading subsidiaries of charitable museums.


The measure will take effect from 1 April 2017.

Our view

Museums and galleries will welcome the extension to permanent exhibitions in response to industry comments that the original proposal to restrict the relief to temporary and touring exhibitions would disadvantage many smaller museums and galleries, which do not have temporary exhibition spaces or regularly changing exhibitions.

Less welcome will be the £500,000 cap on qualifying expenditure per exhibition, especially for larger national museums and galleries.

The National Museum Directors' Council estimates that the extension to permanent exhibitions would provide additional tax relief of around £3.5m per annum. The cap has been introduced to offset this additional cost, keeping the forecast total cost at £30m per annum.

More detail on the proposed relief is expected to be published in the Finance Bill on 5 December. It is likely that the definition of 'exhibition' will need to be more specific than the proposed definition in the consultation document in light of the cap on qualifying expenditure.

The museums and galleries tax relief is the latest in a long list of tax reliefs introduced in recent years to support the creative industries, including film, high-end television, animation, video games, children's TV, theatres and orchestras.

Non-resident landlords and other foreign companies: consultation

The measure

The government has announced a consultation on potential changes to the taxation of non-resident landlords and other foreign companies with UK income. Currently, non-resident companies with a UK trading business are subject to corporation tax; those without a UK trade may be liable to income tax on income from UK sources, such as UK rental income, interest and royalties.

The consultation will consider options to apply corporation tax rules to all UK income received by these companies, including the new limits on interest deductibility and restriction on the use of losses.

Who will be affected?

Non-resident companies with UK source income.


The government will consult at Budget 2017.

Our view

Details have yet to be announced, however, one potential outcome may be that non-resident landlords could be subjected to a lower rate of tax (as the rate of corporation tax falls below the rate of income tax), but with reduced ability to deduct, for example, interest costs or brought-forward losses.

Oil and gas

The measure

The government has announced two simplifications to the petroleum revenue tax ('PRT') regime.

The first is to streamline the process through which companies can opt out of the regime if they have never paid the tax and the second is to remove certain reporting requirements for those companies which remain inside the regime.

Who will be affected?

PRT is only applicable to companies that have interests in UK oil and gas fields which received development consent prior to 16 March 1993.


The simplifications are effective immediately (from 23 November 2016) with retrospective enabling legislation expected in Finance Bill 2017.

Our view

There are approximately 100 oil and gas fields which are potentially subject to PRT but, following the permanent reduction of PRT to 0% at Budget 2016, most of these will never actually pay the tax. Today's simplifications will be welcomed by the industry, releasing them from onerous filing requirements at a time when resources are already squeezed.

Patent box rules

The measure

The government has been working to incorporate the changes resulting from the OECD's work on Base Erosion and Profit Shifting action 5: harmful tax practices, which requires implementation of a nexus approach to the patent box regime. The bulk of the changes were substantively enacted on 15 September 2016 as part of Finance Bill 2016 and came into effect as of 1 July 2016, when the current patent box regime closed to new entrants. Grandfathering provisions are available until 30 June 2021.

The government confirmed today that it will bring in specific provisions as part of Finance Bill 2017 to cover how these changes will apply to companies within a cost sharing arrangement.

Who will be affected?

Companies within a cost sharing arrangement who are expecting to make a claim under the new nexus provisions for the UK patent box. The government's intention is to ensure that companies within a cost sharing arrangement are neither advantaged nor disadvantaged under the nexus regime.


Although the nexus regime came into force from 1 July 2016, the changes specifically covering cost sharing arrangements will only come into effect for accounting periods commencing on or after 1 April 2017.

Our view

These changes were signaled at the release of the nexus provisions (in Finance Bill 2016), and are welcomed. Those companies in cost sharing arrangements should carefully review the new rules when they are released on 5 December 2016. It is expected that there will be a limited window of opportunity to comment on the draft legislation.

PAYE settlement agreements

The measure

The government has confirmed that following consultation it will legislate in Finance Bill 2017 to streamline the process for applying for and agreeing PAYE Settlement Agreements ('PSAs'). Measures consulted on included:

  • removing the requirement for an upfront agreement and instead letting employers assess whether items are eligible by reference to the legislative rules and guidance.
  • digitising the PSA return.
  • aligning the PSA payment deadline to the Class 1A deadline of 19 July.
  • redefining the criteria for including items on PSAs.

We will not know how far any of these measures will be adopted or the precise details until the summary of consultation responses and draft legislation are published next month. PSAs are voluntary agreements that currently allow employers to settle the tax and National Insurance on benefits that are 'minor, irregular or impracticable to report via payroll'.

Who will be affected?

This measure will affect all employers who currently, or in the future, wish to settle the tax and National Insurance on particular taxable expenses and benefits on behalf of their employees.


The new process will apply to agreements for the 2018/19 tax year and subsequent years.

Our view

Removing the need for upfront agreements is a bold move that should reduce administration for employers, but it may also require a more critical up-front process to assess what may and may not be included. Employers may feel more at risk with a 'self-certification' process, but more details of the framework may provide reassurance when released.

Performance fees – offshore funds

The measure

UK taxpayers invested in offshore reporting funds pay tax on their share of a fund's reportable income, and capital gains tax on any gain on disposal of their shares or units. The government will legislate to ensure that performance fees incurred by such funds, and which are calculated by reference to any increase in the fund's value, are not deductible against reportable income and instead reduce any tax payable on disposal gains.

Who will be affected?

Offshore funds and those invested in them.


The changes will be introduced in April 2017.

Our view

This change will give a parity of treatment in the calculation of annual taxable income for onshore and offshore funds. Offshore funds with performance fees (particularly hedge funds) should consider how this change may impact the annual taxation of investors, particularly given the increased risk of a tax charge (before realisation of the investment) in respect of annual income.

Research and development funding and incentives

The measure

The government has committed to an investment of an additional £4.7 billion over the next four years in Research and Development ('R&D') funding, which it recognises as being a key driver of economic growth. The aim of the increased investment is to enhance productivity which is recognised as being weak in the UK compared to other countries such as Germany, France and Italy, which were specifically mentioned in the Chancellor's speech.

The government will introduce two new funds: the 'Industrial Strategy Challenge Fund' and 'Innovation, applied science and research', both to be predominantly led and managed by Innovate UK. This funding will enable the UK to retain its position as a global leader in the fields of science and technology, with particular focus on key areas such as blockchain and artificial intelligence. There will also be increased investment and guidance for FinTech, for which the UK is already recognised as a global leader, and which supports the government's ambitions to maintain and build on its capabilities across industries.

A review of R&D tax incentives will be conducted by the government to build on the success of the Research and Development Expenditure Credit ('RDEC'), with more details on the review expected in the new year.

In addition, investment is planned for innovative start-up business through venture capital funds, to encourage such companies to thrive without the need for acquisitions by larger enterprises.

Who will be affected?

The changes will affect all companies who are, or are intending to begin, carrying out R&D activities, particularly those seeking future assistance for funding.


The funding will become available from the 2017-18 tax year, with an additional £425m of funding, rising each year to an additional £2 billion in 2020-21.

Our view

Overall, we welcome the key aim of ensuring that the next generation of discoveries is made, developed and commercialised in the UK. In particular we welcome the increased investment into innovation in the UK which is important to address the uncertainty around sources of such funds following the UK's exit from the EU.

The announcement of a review into further enhancing the R&D tax incentives will be well received by all companies investing in R&D. We note that whilst it is good to build on the success of the RDEC, there is a need to balance any enhancements with the simplicity of the R&D regimes to ensure that smaller companies can continue to claim for the incentives to which they are entitled. Simplified guidance on the R&D tax regime has been released today, and we look forward to HMRC continuing with this approach.

Substantial shareholding exemption reform

The measure

Following consultation, the government will make changes to simplify the Substantial Shareholding Exemption ('SSE') rules. This will remove the investing requirement within the SSE and provide a more comprehensive exemption for companies owned by qualifying institutional investors.

Who will be affected?

Companies making share disposals.


The changes will take effect from April 2017.

Our view

We welcome the simplification of the SSE and look forward to detailed legislation being released in due course.

The new budget timetable

The measure

The Chancellor announced that the government will move to a single major fiscal event each year, held in the autumn.

Who will be affected?

The new timetable will affect everyone.


In 2017 there will be two budgets, the Spring Budget will be held as normal. The new Autumn Budget will follow to switch to the new timetable. As of 2018, there will be a single budget held in the autumn.

The government will still need to hold a Spring Statement to respond to the The Office for Budget Responsibility's forecasts. The first Spring Statement will be in 2018.

Finance Bills will be introduced following the budget. The aim, under the new timetable, will be for the bills to receive Royal Assent before the start of the tax year.

Our view

We welcome the commitment to have one single fiscal major event, and to enact legislation prior to the commencement of the tax year to which it relates. This should help resolve some of the uncertainty caused by the frequency of changing legislation for UK taxpayers.

To read this Commentary in full, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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