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Spring Statement 2018

Kevin McDaid, Chartered Tax Adviser (ATT, CTA) Ex HMRC, 30 years + experience

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19 March 2018

Spring Statement 2018

 

In last week’s Spring Statement, the Chancellor announced a series of consultations:

1.             Taxation of self-funded work-related training

2.             Corporate tax and the digital economy (position paper)

3.             Cash and digital payments in the new economy

4.             Online platforms’ role in ensuring tax compliance by their users

5.             Allowing entrepreneurs’ relief on gains made before dilution

6.             Financing growth in innovative firms: enterprise investment scheme knowledge-intensive fund consultation

7.             Extension of security deposit legislation

8.             Business rates: delivering more frequent revaluations (consultation outcome)

9.             VAT registration threshold: call for evidence

10.          Alternative method of VAT collection – split payment

11.          VAT, air passenger duty and tourism in Northern Ireland

12.          Tax treatment of heated tobacco products (consultation outcome)

13.          Tackling the plastic problem.

 

Most of these will have little or no impact on you (or your business, if applicable). I pass comment, below, on some of those that are more likely to be relevant:

 

1.     Taxation of self-funded work-related training

 

For the employee, the cost of training is usually met by the employer. However, in some cases it is the employee who bears the cost of the training – i.e. the training is ‘self-funded’.

 

Where the employer pays, the cost of the training is a tax-deductible expense for the employer; however, where the employee pays, the general rule is that the employee cannot claim tax relief for the cost of the training. HMRC estimate that around 860,000 employees self-funded training in 2016; the vast majority would not have received any tax relief.

 

For the self-employed, a tax deduction is available for training costs which are incurred ’wholly and exclusively‘ for the purpose of the business. This means that tax relief is available where the training maintains or updates existing skills but not where new skills are acquired. Around 500,000 self-employed individuals self-funded their training in 2016 and many of these will not have enjoyed full tax relief.

 

The consultation considers whether the tax deduction available to the self-employed should be extended to employees funding their own training.

 

2.     Corporate tax and the digital economy

 

Whether the Government has taken sufficient action to ensure that multi-national digital businesses pay their ‘fair share’ of tax in the UK has been a matter of intense public debate for some time now (think Google, Apple etc).

 

Is there an alternative way of taxing such global organisations that seem to be able arrange their tax affairs so that they pay lower rates of tax in countries like Luxembourg? The government believes that they could be taxed based on the ‘value of wealth’ generated in the UK economy.

 

Whilst the Government is working to reach an international consensus as to how such value can be taxed, it remains prepared to take interim, unilateral, action such as revenue-based taxes.

3.   Cash and digital payments in the new economy

This is the one you may have caught on the news – are they getting rid of our coppers? 1 & 2 pences, that is, not the boys in blue! It seems that only 15% of payments were made in cash in 2015 (according to the Government). I suspect this going down year on year with the advent of contactless cards and the relentless march towards digitalisation of the economy as a whole.

It seems that it will only be a matter of time before ‘cash is king’ becomes ‘cash is history’. Is now the right time to begin that journey?  

4.   Online platforms’ role in ensuring tax compliance by their users

This relates to the likes of Amazon & EBay being held responsible for their customers charging the correct amount of VAT on sales. A Panorama programme at the end of 2017 highlighted how a reporter had set up his own company and imported goods from the Far East for sale in the UK without charging any VAT and being given scant attention from the relevant trading platform, as soon as he had ticked a couple of boxes.

 

VAT need not have been charged so long as the company turnover was below the VAT threshold of £85,000. However, the implication was that nobody in the chain of supply was seriously bothered whether the turnover was £85,000 or £850,000. 

 

See also consultation 10.

 

As with consultation 2, I suspect, there will be few members of the public concerned with how such actions may slightly dent the profits of these global giants.

 

5.   Entrepreneurs’ relief on gains made before dilution

 

The current rules for Capital Gains Tax (CGT) Entrepreneurs’ Relief (ER) enable gains to be taxed at just 10% on the first £10m. This is half the rate that would apply if ER was not available.

 

For the disposal of shares, one of the qualifying conditions is that the individual holds at least 5% of the ordinary share capital for 12 months before disposal.

 

Problems have arisen where the shareholding has been diluted before sale, for instance by obtaining a shareholding in the company that has taken over the existing company.

 

The government is proposing changes to ER so that individuals in this situation can still claim relief. The consultation explores the mechanism to be used to achieve the objective.

8.   Business rates: delivering more frequent revaluations (consultation outcome)

The results of the consultation on business rates published following the 2016 budget have been issued as part of the Spring statement. In future, valuations will be carried out every three years, rather than every five years. This is aimed at diluting the shock of the increases that occur when the revaluations occur less frequently.

The next revaluation will be brought forward a year to 2021. 

9.   VAT registration threshold: call for evidence

The current design of the VAT registration threshold may be deterring small businesses from growing their business, for instance they may try to keep their turnover below the threshold by closing early in the day or season; and/or turning down work.  This was noted by the Office of Tax Simplification in its review of VAT published last year, which recommended that the government examine the current approach to the VAT threshold.

 

This call for evidence explores the effect of the current VAT registration threshold on small businesses, suggests possible different policy options, and asks whether those options could better incentivise growth.

 

See my end of 2017/18 tax year letter for my thoughts on the freezing of the VAT registration threshold until 04/2020. I suspect this could be the precursor for significantly lowering this threshold in line with the vast majority of other European countries.

10. Alternative method of VAT collection – split payment

The digital economy provides opportunities for small- and medium-sized UK businesses to win customers worldwide. Unfortunately, e-commerce has enabled certain businesses to fail to charge the correct amount of VAT on sales.

This consultation on ’VAT split payment‘ to use the ’payments industry technology‘ to collect VAT on online sales and transfer it directly to HMRC.

This ties in with the goal behind consultation 4, whereby larger organisations that facilitate world wide e-commerce may be required to step in to ensure that the correct levels of VAT are being deducted at source.   

                                                 

If you do wish to discuss any of the points raised in this factsheet, please do not hesitate to contact me.

 

Kind Regards

 

KEVIN McDAID

For & on behalf of Tax Facts Ltd. 

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