The chancellor of the exchequer was true to his word that the most we should expect from the Spring Statement was announcements of consultations and calls for evidence. In the event, the papers issued by HMRC and Treasury had a particular focus on the ‘new’ economy. They include a paper on online platforms focusing on educating users about direct tax compliance, a consultation on a ‘split payment’ measure to counter VAT fraud by overseas sellers and a document looking at the use of cash.
User compliance: online platforms
First, there was a ‘call for evidence’ on how online platforms can help to ensure user tax compliance. The document notes the efforts already made by platforms to help with VAT compliance, in part voluntarily and in part in response to new legislation. This call for evidence focuses more on direct tax; and in particular on the growth in ‘amateur’ (my expression) trading.
The paper is generally focused on what platforms can do to educate users. When looking at what other countries do, however, there is a reference to one country requiring the platform to deduct income tax at source, which may develop as an idea by the time the call for evidence becomes a full-blown consultation.
The paper also highlights a practical difficulty HMRC has in using its ‘bulk data’ powers to gather information from platforms where the data is held offshore and outside the reach of HRMC’s powers. It is not clear how HMRC expects to tackle that issue.
Revenue-based digital tax
The updated position paper, Corporate tax and the digital economy, is of course focused on taxing the profits made by companies providing the digital economy infrastructure. It also notes the practical difficulties HMRC would have in administering a revenue-based tax, given that many of the entities in scope will be outside the UK altogether. Whilst the paper makes it clear that HMRC stands ready to act on its own if necessary, the paper shows the difficulties any fiscal authority has with applying tax to digital companies which bestride jurisdictional boundaries. That said, HMRC interestingly points to its experience in applying VAT to overseas sellers as a reason not to have too many concerns.
VAT split payment
While on that subject, following publication in December of a summary of responses to its earlier call for evidence, HMRC has now published a formal consultation on options for a ‘split payment’ measure to counter VAT fraud by overseas sellers.
One of the design principles involves working out who in the payment chain is best placed to siphon off the VAT element of a transaction and pass this straight to HMRC.
In relation to transactions involving overseas sellers generally, HMRC has concluded that the ‘merchant acquirer’ – which ‘acquires’ the debt from the retailer at the point of sale and passes it on to the company that issues the payment card to the customer – is best placed to apply the split. Recognising that the acquirer may be outside the UK, the consultation suggests that the card issuer (typically UK based) will be required to operate the split itself; unless, for each transaction, the card issuer is able to find the acquirer on a live register of trusted acquirers kept by HMRC. In relation to transactions through an online marketplace, unsurprisingly the consultation suggests that the platform itself is best placed to operate the split.
The consultation also considers options for how much money should be withheld:
Option 1 is the blunt approach. This involves assuming that 20% VAT applies and leaving it to the online seller to deal subsequently with HMRC to claim back any overpayment and deduct any allowable input tax.
Option 2 involves a form of flat rate scheme.
Option 3 involves the seller using past performance to calculate its likely ‘effective’ VAT rate (with option 1 being applied if it doesn’t do so). This option is HMRC’s preference.
Cash and the hidden economy
A call for evidence on cash and digital payments in the new economy highlights the decline in use of cash but the importance of keeping it open as an option for payment, with research showing that 2.7m people are entirely dependent on it. The paper made the news because it proposed the abolition of one and two penny coins, 8% of which are apparently thrown away. It also notes the paradox that whilst digital transactions should help to ensure a reduction in the ‘hidden economy’, the effect is not that great because as long as there is cash there will continue to be a safe place for evasion (although presumably as the tide goes out, it will be easier to find the non-compliant traders and consumers). The call for evidence focuses in particular on why cash is still used for large transactions – the subtext being that there must be something implicitly dodgy about using wads of cash rather than a simple electronic payment.
Security for payment
Finally, building on a prior call for evidence, HMRC has started a consultation on extending security for unpaid tax regimes to corporation tax and the construction industry scheme. Such security regimes are a ‘downstream’ response to previous non-compliance, but the consultation also highlights a separate paper (not yet published) on Tax abuse and insolvency and how individuals use limited liability to evade liability or avoid payment. More is expected on this soon.
All in all, whilst the Statement did not include many new enforcement measures, it did show the increasing trend towards HMRC using large businesses to be HMRC’s unpaid tax inspectors.
The chancellor of the exchequer was true to his word that the most we should expect from the Spring Statement was announcements of consultations and calls for evidence. In the event, the papers issued by HMRC and Treasury had a particular focus on the ‘new’ economy. They include a paper on online platforms focusing on educating users about direct tax compliance, a consultation on a ‘split payment’ measure to counter VAT fraud by overseas sellers and a document looking at the use of cash.
User compliance: online platforms
First, there was a ‘call for evidence’ on how online platforms can help to ensure user tax compliance. The document notes the efforts already made by platforms to help with VAT compliance, in part voluntarily and in part in response to new legislation. This call for evidence focuses more on direct tax; and in particular on the growth in ‘amateur’ (my expression) trading.
The paper is generally focused on what platforms can do to educate users. When looking at what other countries do, however, there is a reference to one country requiring the platform to deduct income tax at source, which may develop as an idea by the time the call for evidence becomes a full-blown consultation.
The paper also highlights a practical difficulty HMRC has in using its ‘bulk data’ powers to gather information from platforms where the data is held offshore and outside the reach of HRMC’s powers. It is not clear how HMRC expects to tackle that issue.
Revenue-based digital tax
The updated position paper, Corporate tax and the digital economy, is of course focused on taxing the profits made by companies providing the digital economy infrastructure. It also notes the practical difficulties HMRC would have in administering a revenue-based tax, given that many of the entities in scope will be outside the UK altogether. Whilst the paper makes it clear that HMRC stands ready to act on its own if necessary, the paper shows the difficulties any fiscal authority has with applying tax to digital companies which bestride jurisdictional boundaries. That said, HMRC interestingly points to its experience in applying VAT to overseas sellers as a reason not to have too many concerns.
VAT split payment
While on that subject, following publication in December of a summary of responses to its earlier call for evidence, HMRC has now published a formal consultation on options for a ‘split payment’ measure to counter VAT fraud by overseas sellers.
One of the design principles involves working out who in the payment chain is best placed to siphon off the VAT element of a transaction and pass this straight to HMRC.
In relation to transactions involving overseas sellers generally, HMRC has concluded that the ‘merchant acquirer’ – which ‘acquires’ the debt from the retailer at the point of sale and passes it on to the company that issues the payment card to the customer – is best placed to apply the split. Recognising that the acquirer may be outside the UK, the consultation suggests that the card issuer (typically UK based) will be required to operate the split itself; unless, for each transaction, the card issuer is able to find the acquirer on a live register of trusted acquirers kept by HMRC. In relation to transactions through an online marketplace, unsurprisingly the consultation suggests that the platform itself is best placed to operate the split.
The consultation also considers options for how much money should be withheld:
Option 1 is the blunt approach. This involves assuming that 20% VAT applies and leaving it to the online seller to deal subsequently with HMRC to claim back any overpayment and deduct any allowable input tax.
Option 2 involves a form of flat rate scheme.
Option 3 involves the seller using past performance to calculate its likely ‘effective’ VAT rate (with option 1 being applied if it doesn’t do so). This option is HMRC’s preference.
Cash and the hidden economy
A call for evidence on cash and digital payments in the new economy highlights the decline in use of cash but the importance of keeping it open as an option for payment, with research showing that 2.7m people are entirely dependent on it. The paper made the news because it proposed the abolition of one and two penny coins, 8% of which are apparently thrown away. It also notes the paradox that whilst digital transactions should help to ensure a reduction in the ‘hidden economy’, the effect is not that great because as long as there is cash there will continue to be a safe place for evasion (although presumably as the tide goes out, it will be easier to find the non-compliant traders and consumers). The call for evidence focuses in particular on why cash is still used for large transactions – the subtext being that there must be something implicitly dodgy about using wads of cash rather than a simple electronic payment.
Security for payment
Finally, building on a prior call for evidence, HMRC has started a consultation on extending security for unpaid tax regimes to corporation tax and the construction industry scheme. Such security regimes are a ‘downstream’ response to previous non-compliance, but the consultation also highlights a separate paper (not yet published) on Tax abuse and insolvency and how individuals use limited liability to evade liability or avoid payment. More is expected on this soon.
All in all, whilst the Statement did not include many new enforcement measures, it did show the increasing trend towards HMRC using large businesses to be HMRC’s unpaid tax inspectors.
