Spring Statement 2019—Tax analysis
Tax analysis: A summary of the tax-related announcements made with the Spring Statement on Wednesday 13 March 2019.
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The Chancellor of the Exchequer, Philip Hammond, delivered this year’s Spring Statement on Wednesday 13 March 2019. His statement, punctuated with his trademark sense of humour, was heavily overshadowed by the ongoing deliberations regarding Brexit, to which the Chancellor alluded. The overall tone was upbeat about economic prospects, provided that the UK is able to negotiate a satisfactory agreement with the EU regarding the terms of its exit. No immediate tax changes were announced although a number of proposed spending commitments were (notably in relation to infrastructure and accessing the housing market).
Immediately following Spring Statement 2019, the Treasury published two tax-related consultation documents. One of these contained detailed draft legislation for the new capital allowance for non-residential buildings and structures, which was first announced at Budget 2018. The second was a review of the aggregates levy (first introduced in 2002).
The Treasury also published a lengthy report on progress and plans in relation to tackling tax avoidance, evasion and other forms of non-compliance. A separate batch of policy papers was also released outlining HMRC’s strategy for offshore tax compliance. Mandatory digital reporting for VAT takes effect from 1 April 2019 but the government indicated that this will not be extended to any other taxes in 2020. For the first year of implementation, HMRC will also take a ‘light touch’ approach to penalties for non-compliance with the new digital VAT regime.
A written statement published alongside Spring Statement 2019 also confirmed that a number of other documents will be published in the months to come, for instance draft regulations regarding the taxation of offshore receipts in relation to intangible property and various responses to consultations. The government is also calling for evidence about how best to support the UK as a centre for the oil and gas decommissioning industry. Significant changes to the tax system have already been made to facilitate this.
A summary of the relevant documents published with Spring Statement 2019 is set out below.
Draft legislation on structures and buildings allowance
The publications that accompanied Spring Statement 2019 included draft secondary legislation for the new capital allowance for non-residential structures and buildings announced at Budget 2018.
Section 30 of Finance Act 2019 (FA 2019) contains regulation-making powers enabling the Treasury to introduce the new structures and buildings allowance (SBA) for qualifying capital expenditure on new non-residential structures and buildings incurred on or after 29 October 2018. Key aspects of the SBA that remain as set out in the technical note published at Budget 2018 include:
• the SBA will apply at a rate of 2% per annum on a straight line basis
• relief will be available for new commercial structures and buildings, including conversions and renovations, but not for the cost of land
• relief will be available for overseas structures and buildings where the business is within the charge to UK tax
• claims can only be made when a structure or building first comes into use, and
• if a structure or building is sold, there will not be a balancing adjustment, but the purchaser will take over the remainder of the allowances
Some aspects of the rules have been amended to reflect discussions with taxpayer representatives. For instance, relief will now be available during any periods in which a structure or building is not in use, and when a structure or building is demolished, any unrelieved expenditure may be claimed as a deduction for capital gains purposes.
The consultation on the draft legislation is open until 24 April 2019. Consultation responses will be published in May 2019, with the final legislation taking the form of a statutory instrument that is expected to be made before the parliamentary summer recess.
We will be publishing more detailed analysis on the draft legislation in due course. For more information on the measure as announced at the time of the Budget, see News Analysis: Budget 2018—capital allowances.
Review of the aggregates levy
The government published a discussion paper on the design of the aggregates levy. The levy is being reviewed because:
• it has not been reviewed since its introduction in 2002
• the Office for Tax Simplification’s review in 2011 highlighted the levy’s many exemptions and asked whether the levy could be simplified, and
• the government has committed to devolving the levy to Scotland and intends to devolve it to Wales
The review seeks feedback on all aspects of the levy including its operation, the suitability of the levy for devolution and the impact of the levy. The review is being conducted through a working group, regional visits and written representations.
The review is open until 5 July 2019 and the government will announce next steps by the end of the year.
For more on the aggregates levy, see Practice Note: Aggregates levy.
Report on tackling tax avoidance, evasion and other forms of non-compliance
The government published a report outlining its record on tackling tax avoidance, evasion and other tax non-compliance since 2010. The report highlights, in particular, the government’s focus on tackling marketed tax avoidance schemes, VAT fraud on online marketplaces, offshore tax avoidance and evasion, profit diversion by multinational companies, the hidden economy and organised crime. A detailed list of all measures the government has announced since 2010 to crack down on non-compliance is contained in an Annex A. The report also explains HMRC’s strategic approach to the risk of non-compliance by customer-type and the rationale behind the ‘Making Tax Digital’ reforms.
The paper then sets out, at Annex B, specific information on the predicted effectiveness of each of the tax avoidance-related provisions contained in FA 2019, both in terms of reducing avoidance and evasion, and in reducing the so-called tax gap (albeit in most cases it is stated that the relevant data is not yet available). The social and regional impact of those provisions is also noted. This information has been included to fulfil the government’s obligations under FA 2019, ss 92–93, which were, unusually, included in that Act pursuant to opposition amendments.
Policy papers on offshore tax compliance strategy—‘No Safe Havens 2019’
The government published six policy papers outlining HMRC’s strategy for offshore tax compliance. The main objectives of the ‘No Safe Havens 2019’ policy papers are to:
• maximise revenues and bear down on avoidance and evasion
• transform tax and payments for customers, and
• design and deliver a professional, efficient and engaged organisation
To tackle offshore non-compliance, the government intends to focus on three key aims:
• leading internationally—championing international tax transparency and exchange of information. This includes improving international collaboration between tax authorities to ensure the correct amount of UK tax is paid
• assisting compliance—helping customers get offshore tax right first time. This includes increasing customers’ awareness and understanding of their responsibilities and using new data and insights to design systems and processes to help make tax compliance simpler, and
• responding appropriately—taking a proportionate approach to risk and behaviour. This includes helping those who make mistakes, robustly challenging those who avoid or evade tax and applying sanctions to those who help them
The papers reflect on recent developments aimed at reducing offshore tax non-compliance, including:
The Chancellor’s written statement lists a number of further documents that will be published over the coming months. These include the following.
Draft legislation and guidance:
• offshore receipts in respect of intangible property: draft regulations to ensure the correct application of the rules introduced in FA 2019 that target multinational groups that hold intangible property in low-tax offshore jurisdictions and use that intangible property to generate revenue from UK customers or provide sales in the UK (see News Analysis: Finance Bill 2019—income tax charge to extend to offshore receipts in respect of intangible property). The government will also publish draft guidance on the operation of the provisions
• hybrid and other mismatches: draft regulations updating the definition of exempt regulatory capital instruments within the hybrid mismatch rules (see Practice Note: Hybrid and other mismatches)
• general anti-abuse rule (GAAR): draft legislation on minor procedural and technical changes to the GAAR legislation together with a technical note (see Practice Note: The general anti-abuse rule (GAAR))
• NICs employment allowance: a technical document inviting comments on draft regulations that restrict the employment allowance to those employers whose employer NICs bill is less than £100,000, as announced at Budget 2018
• enterprise investment scheme (EIS) approved funds guidelines: draft guidelines on HMRC’s proposed policy and practice for approving funds together with draft legislation containing powers for HMRC to set appropriate conditions and approve funds
Summaries of responses:
• SBA: a response to the technical note published in October 2018 on the introduction of the SBA (see News Analysis: Budget 2018—Tax analysis—Capital allowances: new structures and buildings allowance)
• protecting your taxes in insolvency: a response to the consultation on the implementation of legislation in Finance Bill 2020 to allow HMRC to be a secondary preferential creditor in company insolvencies for certain tax debts, together with any interest or penalties arising from such debts, with effect from April 2020 (see: Tax weekly highlights—28 February 2019—Business structures and reorganisations)
• corporate capital loss restriction: a response to the October 2018 consultation on the new measure announced at Budget 2018 to restrict companies’ use of carried-forward capital losses to 50% of their capital gains arising in an accounting period
• stamp taxes on shares consideration rules: a response to a consultation published in November 2018 on extending the market value consideration rule, adopting the stamp duty reserve tax (SDRT) definition of ‘money or money’s worth’ for consideration for stamp duty purposes, and aligning the stamp duty and SDRT treatment of contingent, uncertain and unascertainable consideration (see News Analysis: Exploring the stamp taxes on shares consideration rules consultation)
• amendments to tax returns: a response to the call for evidence on modernising the process whereby taxpayers make amendments to tax returns, published in November 2018 (see: Tax weekly highlights—8 November 2018)
• digital services tax (DST) : a response to the consultation published on 7 November 2018 on the design and implementation of the DST. The DST will introduce a 2% charge from April 2020 on the revenues generated by certain digital businesses from UK user participation (see News Analysis: Exploring the consultation on the design and implementation of a digital services tax)
• preventing abuse of R&D tax relief for small- or medium-sized enterprises (SMEs): a consultation on the application of the anti-avoidance measure announced at Budget 2018 which will introduce a limit on the payable tax credit that a qualifying loss-making company can claim from 1 April 2020
• CGT private residence relief: a consultation on changes announced at Budget 2018 that extend principal private residence relief
Calls for evidence:
• insurance premium tax (IPT) operational review: a call for evidence on improving the operation of IPT (see Practice Note: Insurance premium tax)
• VAT partial exemption and capital goods scheme—simplification: a call for evidence on simplification and improvement following recommendations from the Office of Tax Simplification (see News Analysis: Keeping it simple—Office of Tax Simplification’s review of VAT)
• social investment tax relief (SITR): a call for evidence on how the SITR has been used, focussing on under-utilisation and the impact on access to finance for social enterprises