The Chancellor issued his Spring Statement on 13 March 2018. From a tax perspective, the Statement was primarily about announcing a series of consultations on tax measures that the government is considering. Thirteen papers were published comprising consultations documents, calls for evidence and updates on previous work.
Taxing the Digital Economy More Fairly / More Accurately
The government is aware how much value attaches to user participation in the digital economy – such as the data that users create simply by being involved. In general, “big data” firms have prioritised their IP in terms of their analytical tools, which can be located remotely from where the raw data is generated.
“…businesses …generate valuable data on users’ behaviours, interests and consumption habits through the intensive monitoring of their engagement with the platform.”
The government is therefore consulting on how best to tax the value creation of UK user involvement.
“The preferred and most sustainable solution to this challenge, is reform of the international corporate tax framework to reflect the value of user participation” which will require co-operation at the OECD level but in the meantime, “there is a need to consider interim measures such as revenue-based taxes”.
The EU is currently mooting similar taxing arrangements.
Extension of Security Deposit Legislation
(Consultation Document open to 8 June 2018). To take effect from April 2019.
The government has powers to require a business to provide a (monetary) security deposit in respect of:
- PAYE & NICs
- Insurance Premium Tax
- Landfill Tax
- Aggregates Levy
- Climate Change Levy
- Some gambling duties
These powers are supposed to ensure that, if the business will not pay its ongoing tax liabilities, then the security can be claimed to protect the Exchequer. The measures are meant to be used only sparingly.
The government intends to extend the security deposit regime to both Corporation Tax and to the Construction Industry Scheme (CIS).
According to the consultation document, HMRC estimates that extending security provisions to CT and CIS will result in an additional 400–500 cases in scope for securities action each year.
VAT Registration Threshold
VAT Registration Threshold: Call for Evidence (Consultation open to 5 June 2018)
The government is concerned that the VAT Registration Threshold acts as a barrier to impede business growth, with many businesses “clustering” just under the Threshold. The government has previously said that it is not minded to reduce the threshold; that would appear logical, since it might then only move the problem further down the income scale. The government apparently wants to know what aspects of VAT administration are particularly burdensome for small businesses. Readers may note the consultation sets out that the government is confident that Making Tax Digital will makes things easier for small businesses.
Getting Online Platforms to Make Citizens More Compliant
(Call for Evidence closes 8 June 2018)
The paper asks for input on how best to make sure that online marketplace-type websites make sure that their customers/users are complying with their tax obligations.
The approach seems quite reminiscent of placing the onus on employers and engagers to determine employment status. The problem has been that, in some cases, engagers have simply adopted a default position, being to assume all relationships with individuals are ones of employment, so as to minimise their own perceived risk. (People are then treated as employees even if they should be considered self-employed).
There are clearly numerous possible scenarios where online platform users will not be undertaking any taxable activity at all, such as where they sell privately-owned goods, or exchange services without involving money (assuming that the values involved are not so great as to have to worry about Capital Gains Tax or VAT).
Getting Websites to Extract VAT Automatically for Imports
Alternative Method of VAT Collection – Split Payment (Consultation Document open to 29 June 2018)
The government has long been concerned that very many online transactions over online marketplaces are not accounting for VAT correctly, particularly where a private individual pays for small items to be delivered from an overseas importer. The government wants online marketplaces to deduct or apply UK VAT on imported goods and pay it over to HMRC automatically, so that it does not need to rely on overseas businesses registering and accounting for UK VAT.
It seems that this will all happen “invisibly” so that UK consumers see no significant difference. It may be that some importers will have to increase their prices but this will even up the competition for UK-based suppliers.
The government is evaluating several options:
- a small prepayment-type percentage, relying on importers to register and account for the balance, in a system operating broadly as now,
- a broader flat rate, or
- a net effective rate, whereby each overseas business will have a specific rate, based on its previous year’s results and will reckon up annually
HMRC seems to favour the last option, which is probably the fairest and most accurate, but it does beg some careful consideration of how refunds will be made.
Tax Relief for Own Costs of Work-Related Training
Taxation of Self-Funded Work-Related Training: Consultation on the Extension of Tax Relief for Training by Employees and the Self-Employed (Consultation Document open to 8 June 2018)
Readers will be aware that the tax regime currently offers little practical scope for:
- Employees to get tax relief for training costs (that are not reimbursed by their employer) because that training basically has to be an intrinsic part of the duties of their employment, (ITEPA 2003 Part 4 Chapter 4 – ss 250 et seq. ensures that this is not taxed on the employee where paid or reimbursed by the employer), and
- The self-employed to get tax relief for training if it provides an “enduring benefit” (capital) to their business, as distinct from simply updating existing skills
The government wants input on how the tax regime may be improved to assist the strategic aim of reducing the country’s skills gap. Where individuals need to re-train in an entirely new field, to adapt to changes in the work market, then tax relief might be allowed against a new source of income arising within a specified timeframe. Alternatively, a tax credits regime could be adopted.
Entrepreneurs’ Relief Easement (ER)
(Consultation Document open to 15 May 2018)
As announced in the 2017 Autumn Budget, the government perceives that ER might act as a barrier to natural growth for a business that needs or wants inward equity investment, in scenarios where shares are being issued to new investors such that the original director’s/shareholder(s) own holdings might then fall below the critical 5% threshold of eligibility. The government proposes:
- a new facility that allows individuals to elect to be treated as having disposed of and reacquired their shares at the then-market value, immediately prior to the “diluting event”, and
- allowing individuals to choose to defer the taxation of this gain until an actual disposal of the shares
The effect is to make a claim on the ER they would have had, and then (if they so elect) to pay the tax when a real disposal event takes place and there are proceeds to pay the liability.
Enterprise Investment Scheme (EIS) and Knowledge-Intensive Companies (KICs)
Financing Growth in Innovative Firms: Enterprise Investment Scheme Knowledge-Intensive Fund Consultation (Consultation Document Open to 11 May 2018)
The government is consulting on special reliefs for KIC funds within the existing EIS framework, such as:
- Exempting dividends received after a period of time of (say) five or seven years after subscription, to reward “patient capital” investing. Of course, prioritising dividends over reinvestment for future growth could be a potential issue.
- CGT Relief could be changed or enhanced from mere postponement or deferral to an outright exemption, along the lines of the measure available for SEIS investments.
- Extending the scope of the potential to carry back relief not just to the year before investment but even further back.
Business Rates to be Revalued More Frequently
The Response Summary picks up from commentary in the 2017 Autumn Budget, in announcing that the next revaluation will be brought forwards by one year to 2021, and based on market rental values at 1 April 2019. More frequent revaluations should be welcomed by businesses, as more accurately reflecting the property’s rental market value.
Measures to Prevent Plastics Pollution
(Call for Evidence Open to 18 May 2018)
The Call for Evidence asks for input on reducing the amount of single-use plastic waste, such as through increasing re-use and re-cycling. In his speech, the Chancellor confirmed that any measures would be to change behaviour, rather than simply being a means to raise revenue.
Impact of VAT and Air Passenger Duty on Tourism in Northern Ireland
(Call for Evidence Open to 5 June 2018)
The government is asking for input on how VAT and APD affect tourism in Northern Ireland. Many other countries in the EU adopt reduced rates of VAT for tourism and hospitality-based sectors – notably, Ireland’s comparable rate is just 9%.
Tax Treatment of Heated Tobacco Products
The consultation relates to a new innovation in the tobacco sector, namely heating, rather than burning tobacco. It does not relate to e-cigarettes, which do not contain tobacco. As well as summarising the responses to the earlier consultation, the paper says that the government is minded to create a new excise category for this sector.
Cash and Digital Payments
(Consultation Document Open to 5 June 2018)
The government has issued a fresh Call for Evidence on the use of cash in the “New Economy”, so that it can understand how the transition from cash to digital payments impacts on different sectors, regions and demographics. The government wants to ensure people still have the ability to pay by cash if they need to, but wants to make life harder for those who want to use cash to evade tax or launder money. There are aspects on improving access / reducing barriers to digital payment systems as well. This follows on from HMRC’s Call for Evidence on cash in the hidden economy, in 2015 and 2016.
For more content like this,