Expert insight into the Chancellor's statement.
The Chancellor of the Exchequer announced his first Spring Statement on the 13th March. It was trailed as not introducing new tax measures or spending measures, but a number of interesting consultations and requests for evidence were published focusing on how the tax system should adapt to the modern world.
The overall economic climate presented by the Chancellor was one of steady, but not dynamic, growth. The expected GDP growth of around 1.5% per annum over the next five years does not compare well with our international counterparts or with historic UK performance. This has led the Chancellor to be cautious with his spending commitments, with the Autumn Budget lined up to set the overall spending framework for the next spending round with detailed departmental budgets set during 2019.
From a tax perspective, the Chancellor’s aim was to think ahead to the challenges of the digital economy. We welcome the approach of earlier consultations and evidence gathering, as this should improve the tax policy making process with improved legislation in due course.
The government published a position paper at the last Autumn Budget and invited comments over the winter on how the profits from digital business such as social media and search engines should be taxed internationally, with a new concept of taxing the value created by user participation. An update to this position paper confirms that Government will continue to pursue this approach and is looking to influence the wider international discussions to be held at the OECD. However, an interim measure could well be introduced if the international approach takes too long to come to fruition.
On-line marketplaces have been subject to a number of VAT changes over the past couple of Finance Acts, with the introduction of joint and several liability with their merchants.
There are two consultations which focus on the tax impacts and relationships between the customers, the online market place, the payment cards and the suppliers. The first consultation asks how on-line marketplaces can improve the tax compliance of their suppliers, both direct and indirect. The second consultation looks at whether customer payments should be split into a VAT and a net element before arriving at the supplier. This would be a major change in how the VAT system operates, particularly for on-line market places and payment providers, and would not be currently possible under EU law. Whilst the EU is also looking at this issue, Brexit enables the Government to take a quicker response. The Government is continuing to look at the design of the VAT threshold, whilst commenting that they are not minded to reduce it notwithstanding lower VAT thresholds internationally.
There are two consultations on financing growth in innovative companies. The first consultation would enable entrepreneurs’ relief to be claimed where an issue of shares during a financing round results in the individual going below the 5% de minimis holding; this could apply from April 2019. The second consults about the creation of a new EIS based fund for investors in knowledge intensive companies.
Continuing the approach on protecting tax income, the Government is consulting on extending the existing security deposit scheme for taxpayers with a high risk of not paying and with a history of non-compliance in relation to corporation tax and the construction industry deduction scheme.
The Government is also being proactive in tackling the problem with waste from single use plastics. They have published a call for evidence to explore how changes to the tax system or charges could be used to reduce the amount of single-use plastic waste by reducing unnecessary production, increasing reuse, and improving recycling. The aim is not to raise tax, but to change behaviour.
Other announcements today include bringing forward the next business rates valuation to 2021 and then tri-annually thereafter, a call for evidence on changes in VAT and air passenger duty on tourism in Northern Ireland, a call for evidence on the role of cash and digital payments in the new economy and a consultation on improvements in how the tax system supports self-funded employees and the self-employed training costs.
A number of consultations over the next coming months have also been promised for the oil and gas industry, simplification of the taxation of short term business visitors, a consultation to make the taxation of trusts simpler and a consultation on the design of a system for capital gains tax to be paid within 30 days on the completion of a sale of residential property. Also, a response to the consultation on HMRC’s risk-profiling of large business.
Whilst some people will be disappointed that there have been no immediate announcements of tax changes or spending commitments, a less hectic approach to tax changes will be welcomed by business. This approach is likely to continue over the rest of the year, with further consultations to come over the summer but no indications yet of any major changes to be implemented in the Autumn 2018 Budget. The Chancellor appears to be delivering on the ask of business for stability and certainty on tax matters.