The last ever Spring Budget (again). The end of an era. As Philip Hammond took to the floor for his first Budget there must have been a temptation to mark the occasion in suitably dramatic style. With encouraging OECD forecasts suggesting some room for manoeuvre, was it the moment for one last rabbit out of the hat, just for old times’ sake?
Hardly. The Chancellor stuck to the path set out in last year’s Autumn Statement. In a turbulent world, UK business tax policy is, so the message went, an oasis of calm.
That is a message which business wants to hear, but of course the reality faced by most large businesses belies this tranquil image. Whilst the absence of major new policy announcements in the Chancellor’s speech is welcome, this does not mean that the Finance Bill, due to be published on 20 March, will make light reading.
Particularly prominent are the major changes to the UK’s rules governing relief for losses and for interest costs due to take effect from 1 April 2017. With the legislation for both of these significant reforms already having changed since the initial draft published in December, further tweaks promised today, and less than a month to go before the commencement date, businesses might be forgiven for feeling that the current pace of change is far from relaxed.
Much of what is currently occupying the attention of multinational business is, of course, the legacy of the previous Chancellor. But there were some hints today that Mr Hammond may not be entirely resistant to some reforms of his own. Promised measures to reduce the administrative costs of claiming research and development reliefs will be welcome, but are unlikely to get many pulses racing. References to a medium-term ambition to finding a “better way of taxing the digital part of the economy” suggest bigger changes may be on the way, but as yet there are no details of what these may be. As the OECD discovered, it is not straightforward to determine what the digital economy actually is.
The taxation of leases has been on the agenda for a while, with the relevant accounting rules due to change from 2019. Further consultation has now been announced on legislative changes reflecting the new accounting regime, with the Government seeking to broadly preserve the existing tax position (the least radical of the various options it has previously put forward).
There was some good news for the oil and gas sector, with the promise of a formal discussion paper on tax issues for late-life oil and gas assets. One of the areas of focus will be on tax relief for decommissioning, currently limited to the tax history of the company undertaking the decommissioning which can create an economic barrier for new entrants. A panel formed of a small group of upstream oil and gas experts is expected to provide advice to the Government on these issues.
Encouraging inward investment is understandably on the Chancellor’s mind and the Budget documents note a couple of withholding tax changes intended to facilitate this: extending the Double Tax Treaty Passport scheme and a new exemption for debt traded on a multilateral trading facility. A consultation on the latter is expected shortly, but in terms of more dramatic changes the Chancellor seems happy to keep his powder dry until the formal process of Brexit is really underway.
With the Chancellor determined to maintain a balanced budget, protecting the tax base was inevitably high up on his list. There was a repeat of the promise to consult on bringing non-UK resident companies currently subject to income tax within the scope of UK corporation tax (and hence the interest and loss restriction rules) – a measure widely seen as targeted at the holding of UK property offshore. There is a new restriction on the ability to convert capital losses into income losses and a new anti-forestalling rule will accompany the previously announced hike in insurance premium tax.
Most large businesses are unlikely to be directly impacted by these targeted measures, although they may still feel a slight unease at the continued trend for the concept of ‘avoidance’ to blur in the pursuit of an ever shrinking ‘tax gap’. The ‘anti-avoidance’ measure targeting the conversion of capital to income losses, for example, is in reality little more than the removal of flexibility consciously provided by way of a specific tax election by a previous Government.
What should attract the attention of all large businesses is the quietly announced proposed consultation on the changes to the way HMRC carries out its risk profiling. The value of a constructive working relationship with the tax authorities and the potentially high administrative burden of interventions is widely recognised. The reality in 2017 is that very few large businesses are engaged in high risk activity, leading to concerns that there is a trend towards all businesses being classed as ‘low risk’ and the risk rating system effectively becoming meaningless. The implications of any changes in how HMRC determines the risk status of particular taxpayers, and especially any raising of the bar for the coveted ‘low risk’ status, are therefore potentially significant and accordingly large businesses will be watching developments here carefully.
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Some changes to the draft Finance Bill 2017 legislation on tax deductibility of corporate interest expense have been announced.
The Spring Budget provides some clarity on the approach to be taken under IFRS16 but more detail is still required.
Non-EU mobile phone charges paid by UK consumers will be subject to UK VAT from 1 August 2017.
HMRC are to launch a consultation on their process for risk profiling large businesses.
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