Spring Budget 2017 mostly announced refinements to refine policy initiatives previously announced in Autumn Statement 2016 or earlier – so the chancellor of the exchequer was true to his word that, at least in an enforcement sense, the government has moved to a single fiscal event in the autumn of each year.
That said, Budget 2017 did involve a handful of new enforcement measures, especially in relation to indirect taxation, making this Budget different from the VAT-lite Budgets and Autumn Statements of recent years.
It also trumpeted that over 35 measures to tackle avoidance, evasion and aggressive planning were being introduced over the life of this parliament and that £140bn in tax had been secured through tackling non-compliance since 2010. However, there was a surprising lack of information about a few projects which have been ongoing for a while now. We may therefore need to wait for Autumn Budget 2017 for these to get going.
Offshore: In particular, nothing was said about the consultation on introducing a requirement to register offshore structures for intermediaries arranging complex structures for clients holding money offshore. The consultation closed on 27 February.
There was also nothing mentioned about whether the ‘persons of significant control’ regime for UK companies and LLPs, or something similar, would be extended to trusts – or whether such a regime would be introduced for trusts and foreign companies owning UK real estate. A requirement to disclose beneficial ownership of residential property would have a much greater deterrent effect on foreign investors than any of the recent tax changes (ATED, CGT and IHT), so before acting on that the government may be waiting to see how the property market fares in response to Brexit and changes to SDLT introduced in the last 12 months.
Avoidance: Some minor modifications to the new penalty regime for enablers of defeated abusive avoidance and users of defeated avoidance who fail to take reasonable care were announced, including extending the former regime to NICs and setting out how the GAAR panel will be involved in the determination of whether a scheme was abusive.
The new ‘Disclosure of avoidance schemes: VAT and other indirect taxes’, which sits in draft Finance Bill 2017 Sch 21 and applies to a full gamut of indirect taxes from custom duties through to pool betting duty, will now also include avoidance of the sugar levy.
It was also announced that the changes to bring NICs recovery within the tax assessment machinery and time limits, rather than, as it presently sits, under debt recovery procedures subject to the Limitation Act 1980, has been deferred to form part of a future NICs bill.
Fraud: Two new measures were announced to combat VAT fraud. First, HMRC will consult on policy options for combating VAT fraud on labour costs in the construction sector. The fraud usually involves the racking up of significant VAT debts in a company which supplies labour services before that company goes ‘missing’ without accounting for the VAT.
Second, HMRC will consult on an innovative ‘split payment’ method to combat the ease with which VAT fraud can take place in online market places – the issue being that unregistered overseas sellers can gain easy access to UK retail customers, resulting in substantial amounts of VAT being undeclared and compliant businesses being undercut. The regime would presumably create an obligation on the market place or payment handler to account directly to HMRC for VAT on the sale, passing only the gross sum on to the seller. This would clearly require a judgment by the payment handler as to whether the supply is subject to VAT and I am sure will be massively complex – although other countries appear to have successfully implemented similar sounding schemes.
Minor but significant amendments to the Fulfilment House Due Diligence Scheme, to be introduced with effect from April 2018 to combat online VAT fraud, were also announced.
The hidden economy was also targeted, with further proposals to be released for requiring evidence of tax registration as a condition of obtaining certain business licences or services, tougher ‘failure to notify’ sanctions for ‘ghosts’ (entirely off the system) and moonlighters (whole source of income undeclared), and monitoring those previously found to be non-compliant.
Large business: HMRC has announced it will consult on a new approach to risk profiling large business, in order to improve rates of compliance. This may be linked to the longstanding consultation on introducing a framework for cooperative compliance between HMRC and large business – and the review of the effectiveness of the customer relationship manager programme. The relationship between large business and HMRC is probably currently at its lowest ebb – with dissatisfaction levels rising about the use (or misuse) of real-time working, time taken to resolve issues, and access to policy teams.
On the flip side, HMRC battles with a public perception of a cosy relationship. There is a clear imperative to have a good working relationship with the customers who individually provide such large slugs of tax revenue, but even perhaps a small change in title might help allay the perception issues. Using the term customer ‘compliance’ manager rather than ‘relationship’ manager might help to explain that HMRC’s ‘relationship’ with large business is not just about frictionless tax collection but also about cracking down on any non-compliance.
Employees, workers and the self-employed: Of course, one of the hottest topics right now is the tax treatment of the ‘gig’ economy – and what the chancellor referred to as the ‘highly paid professionals’ working through LLPs (not sure who he means by that!). The first steps in correcting this anomaly have now been taken by reducing the tax free dividend allowance and increasing class 4 NICs. We await to see the outcome of the Taylor Review to see where we are going next.
Spring Budget 2017 mostly announced refinements to refine policy initiatives previously announced in Autumn Statement 2016 or earlier – so the chancellor of the exchequer was true to his word that, at least in an enforcement sense, the government has moved to a single fiscal event in the autumn of each year.
That said, Budget 2017 did involve a handful of new enforcement measures, especially in relation to indirect taxation, making this Budget different from the VAT-lite Budgets and Autumn Statements of recent years.
It also trumpeted that over 35 measures to tackle avoidance, evasion and aggressive planning were being introduced over the life of this parliament and that £140bn in tax had been secured through tackling non-compliance since 2010. However, there was a surprising lack of information about a few projects which have been ongoing for a while now. We may therefore need to wait for Autumn Budget 2017 for these to get going.
Offshore: In particular, nothing was said about the consultation on introducing a requirement to register offshore structures for intermediaries arranging complex structures for clients holding money offshore. The consultation closed on 27 February.
There was also nothing mentioned about whether the ‘persons of significant control’ regime for UK companies and LLPs, or something similar, would be extended to trusts – or whether such a regime would be introduced for trusts and foreign companies owning UK real estate. A requirement to disclose beneficial ownership of residential property would have a much greater deterrent effect on foreign investors than any of the recent tax changes (ATED, CGT and IHT), so before acting on that the government may be waiting to see how the property market fares in response to Brexit and changes to SDLT introduced in the last 12 months.
Avoidance: Some minor modifications to the new penalty regime for enablers of defeated abusive avoidance and users of defeated avoidance who fail to take reasonable care were announced, including extending the former regime to NICs and setting out how the GAAR panel will be involved in the determination of whether a scheme was abusive.
The new ‘Disclosure of avoidance schemes: VAT and other indirect taxes’, which sits in draft Finance Bill 2017 Sch 21 and applies to a full gamut of indirect taxes from custom duties through to pool betting duty, will now also include avoidance of the sugar levy.
It was also announced that the changes to bring NICs recovery within the tax assessment machinery and time limits, rather than, as it presently sits, under debt recovery procedures subject to the Limitation Act 1980, has been deferred to form part of a future NICs bill.
Fraud: Two new measures were announced to combat VAT fraud. First, HMRC will consult on policy options for combating VAT fraud on labour costs in the construction sector. The fraud usually involves the racking up of significant VAT debts in a company which supplies labour services before that company goes ‘missing’ without accounting for the VAT.
Second, HMRC will consult on an innovative ‘split payment’ method to combat the ease with which VAT fraud can take place in online market places – the issue being that unregistered overseas sellers can gain easy access to UK retail customers, resulting in substantial amounts of VAT being undeclared and compliant businesses being undercut. The regime would presumably create an obligation on the market place or payment handler to account directly to HMRC for VAT on the sale, passing only the gross sum on to the seller. This would clearly require a judgment by the payment handler as to whether the supply is subject to VAT and I am sure will be massively complex – although other countries appear to have successfully implemented similar sounding schemes.
Minor but significant amendments to the Fulfilment House Due Diligence Scheme, to be introduced with effect from April 2018 to combat online VAT fraud, were also announced.
The hidden economy was also targeted, with further proposals to be released for requiring evidence of tax registration as a condition of obtaining certain business licences or services, tougher ‘failure to notify’ sanctions for ‘ghosts’ (entirely off the system) and moonlighters (whole source of income undeclared), and monitoring those previously found to be non-compliant.
Large business: HMRC has announced it will consult on a new approach to risk profiling large business, in order to improve rates of compliance. This may be linked to the longstanding consultation on introducing a framework for cooperative compliance between HMRC and large business – and the review of the effectiveness of the customer relationship manager programme. The relationship between large business and HMRC is probably currently at its lowest ebb – with dissatisfaction levels rising about the use (or misuse) of real-time working, time taken to resolve issues, and access to policy teams.
On the flip side, HMRC battles with a public perception of a cosy relationship. There is a clear imperative to have a good working relationship with the customers who individually provide such large slugs of tax revenue, but even perhaps a small change in title might help allay the perception issues. Using the term customer ‘compliance’ manager rather than ‘relationship’ manager might help to explain that HMRC’s ‘relationship’ with large business is not just about frictionless tax collection but also about cracking down on any non-compliance.
Employees, workers and the self-employed: Of course, one of the hottest topics right now is the tax treatment of the ‘gig’ economy – and what the chancellor referred to as the ‘highly paid professionals’ working through LLPs (not sure who he means by that!). The first steps in correcting this anomaly have now been taken by reducing the tax free dividend allowance and increasing class 4 NICs. We await to see the outcome of the Taylor Review to see where we are going next.
