The fiscal elements of the Spring Statement focused on three main areas: first, some additional anti-avoidance measures; second, confirmation that various consultation processes previously announced have now closed and draft legislation will be introduced. Finally, there were a series of measures which address perceived technical defects in current tax legislation.
The majority of the measures not previously announced will be the subject of consultation before legislation. The Chancellor, Philip Hammond, has been as good as his word on this: his stated aim when he reordered the annual tax reform calendar, with a full Autumn Budget and a brief Spring Statement, was to enable legislation to be published in draft for public comment in advance of it passing into law. This is a good thing and will enable better legislation to be passed with fewer anomalies and the requirement to amend it.
The main anti-avoidance measure announced was a renewed intention by the Chancellor to tackle non-compliance in relation to offshore tax.
The Chancellor published the government’s renewed strategy to tackle offshore tax compliance. He also confirmed a review of Research and Development tax relief for small and medium-sized enterprises (“SMEs”), which was perhaps not widely expected, and may be of concern to SME business leaders. Inevitably, when reliefs are tightened up, the rules become more complex and innocent parties are also caught.
The statement was, however, keen to stress that the government intends to minimize any negative impact on genuine businesses.
Making Tax Digital
The long-awaited Making Tax Digital (“MTD”) legislation for VAT will be coming into play from the new tax year, with the Chancellor confirming that penalties will be applied with a light touch in the first year of operation given the challenges MTD will bring in its infancy.
The Chancellor has also confirmed that HM Revenue & Customs will, as previously outlined, again be a preferential creditor for some taxes in insolvencies—which will likely be a much-needed source of state income in the years ahead.
This week the EU announced that it was dropping its plans to introduce a digital services tax and would instead follow the Organization for Economic Co-operation and Development’s (“OECD”) initiative. The U.K. (and France) however have pledged to continue alone and will introduce their own tax unless the OECD puts in place satisfactory arrangements.
The Chancellor’s statement confirmed that the digital services tax, a turnover-based tax for larger tech companies, is set to be introduced in April 2020, although he has said that it will be subject to a consultation process.
The overriding purpose is to compel multinational tech companies to pay more tax in countries that they operate in, and ultimately aims to close off any loopholes previously enjoyed. There is a general consensus concerning this overriding policy objective, but the U.K. version of the tax is an extremely blunt instrument which does little to address the tax challenges presented by the digitalization of global businesses.
Paul Falvey is a Tax Partner at BDO LLP, U.K.
Paul has considerable experience of working with international businesses and regularly advises on a range of corporate transactions including acquisitions and disposals, restructuring, and international tax planning.