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Spring Statement 2018: the tax report

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Documents published alongside the Spring Statement include:
  • an updated position paper setting out the government’s view on preferred solutions to challenges posed by the digital economy on the corporate tax system;
  • a consultation on creating a fund structure within the enterprise investment scheme for investment in innovative knowledge-intensive companies;
  • a consultation on changes to entrepreneurs’ relief to avoid discouraging entrepreneurs from seeking external finance for their companies;
  • a consultation on extending the existing securities regime to corporation tax and construction industry scheme deduction;
  • a call for evidence on the VAT registration threshold;
  • a consultation on the role of online platforms in ensuring tax compliance by their users;
  • a consultation on the design of a split payment mechanism for online sales;
  • a...
The Chancellor of the Exchequer, Philip Hammond, delivered his first Spring Statement on Tuesday 13 March 2018. Sticking to his promise of a single fiscal event each autumn, Hammond did not announce any new spending commitments or immediate tax changes, instead stating that the abolition of twice-annual tax changes gives businesses more certainty and aligns the UK system with those of its counterparts.
As promised, the chancellor’s statement focused on providing an update on the overall health of the economy and a summary of the public finances provided by the government’s independent forecaster, the Office for Budget Responsibility (OBR).
The Spring Statement was used to announce policy reviews and consultations. Immediately following the Spring Statement, the Treasury published 13 consultation documents inviting views on future changes to the tax system.

Corporate tax and the digital economy: position paper

Following the publication of a position paper at Autumn Budget 2017 and a consultation that ran until 31 January 2018, the government has published an updated position paper reflecting feedback from stakeholders and providing more details. This is not a final paper and has been published with a view to further engagement to resolve outstanding questions.
As before, the government recognises that many online digital businesses rely on their users to generate revenue and create value through their active participation in the platform. The updated paper provides a more detailed explanation of how the government thinks this value is created. Examples include the advertising revenue that is generated by a social media platform as a result of users uploading their own content, and where sustained engagement by users allows a business to tailor its platform and content to each specific user. The updated paper differentiates between users and customers, with users performing supply-side functions which a business would otherwise have undertaken. The paper also sets out the government’s view that data collection is not equivalent to user participation and thus the sourcing of data from the UK should not entitle the UK to a taxing right on any business profit.
In the government’s view, user participation is most relevant for online networks such as social media platforms, file or content sharing platforms, search engines and online marketplaces, and less relevant for businesses such as e-retailers and digital software/hardware providers. The government recognises there is a need to continue to examine business models to make sure any tax measure is correctly targeted and can distinguish between different business categories. Newer business models, e.g. those based on artificial intelligence or augmented reality, also need to be considered.
As stated in the previous position paper, the government believes that the best way to capture ‘user-created value’ is to reform the international corporate tax framework to reflect the value of user participation. The framework would need to be amended to set out a method for determining user-created value and to identify the companies which should be taxed on profits attributable to that value. Jurisdictions would then need to be given the right to tax those companies and a method would need to be agreed for allocating user-created profits between each jurisdiction with a taxing right. This would require modifications to articles 5, 7 and 9 of the OECD Model Tax Convention and to the OECD transfer pricing and profit attribution guidelines. The updated position paper includes a possible approach (together with practical examples), setting out the government view that:
  • It is likely that the value from user participation is realised in the companies in a group which receives the residual profits of the business after the service providers have received an arm’s length return, so a reallocation of the profits of these residual profit owners (also referred to as ‘principal companies’ in the paper) is justified and achievable.
  • The inherent difficulty in measuring user-created value means it might be necessary to reward that value through a percentage share of the residual profit realised by the principal companies in the group, designed to approximate the value that users generate. The government suggests that OECD guidance could include parameters for the share of residual profit that can be allocated to user participation for different categories of business, together with an approach for deciding where a particular business should be placed within those parameters based on business-specific criteria.
  • When determining how the user-created value should be allocated between different user jurisdictions, an allocation key could be used to approximate the value of users in each jurisdiction. Rather than relying on user numbers in each jurisdiction, the allocation key would need to account for variations in user value which could mean looking at ‘active users’ or revenues attributable to users in each jurisdiction.
  • The simplest approach when considering which legal person to tax would be to allow jurisdictions to tax the principal companies in proportion to the participation of local users. Challenges thrown up by this are discussed further in the paper.
  • The amount of business profits that can be taxed by user jurisdictions should be limited to ensure sufficient recognition of value derived from elsewhere. There should also be a threshold which would need to be satisfied before a jurisdiction would have a right to tax a share of user-created profits, i.e. a permanent establishment threshold set at a higher level than just the presence of local users.
Although the ideal solution is a multilateral one, the government has reiterated that it intends to look at interim options to raise revenue from digital businesses which generate value from UK users and that it is prepared to act unilaterally. It envisages a tax on the revenues of digital businesses deriving significant value from UK user participation, irrespective of the physical presence those businesses have in the UK. The updated paper discusses considerations regarding the scope and design of such a measure. 
The government intends to engage further on the scope of the interim tax measure. It commented that the tax could apply to: businesses for which the channels through which users create value are most relevant; specific business types; or specific revenue streams of any type of business. It is likely the government will only tax revenues which relate to users in the UK but it is aware that there are challenges in identifying user location. The paper also includes suggestions to ensure there are protections built in for start-ups and growth companies.
The government intends to keep engaging with businesses, the OECD’s Inclusive Framework and the EU in order to develop an effective policy solution. Stakeholders can provide written feedback on the updated policy paper, albeit there is no deadline for submission.
See Corporate tax and the digital economy: position paper, available via

EIS knowledge-intensive fund consultation

As announced at Autumn Budget 2017, the government is consulting on creating a fund structure within the enterprise investment scheme (EIS) for investment in innovative knowledge-intensive companies (KICs) that would enable the use of capital over a long period. These proposals form part of the government’s response to the patient capital review (conducted in 2017).
The patient capital review identified that KICs, meaning companies that are R&D-intensive and capital-intensive and have high growth potential, have the most difficulty obtaining the capital they need to grow. As a result, a number of changes are being made in Finance Bill 2018 (‘FB 2018’, i.e. the Finance (No. 2) Bill 2017–2019, published on 1 December 2017 and which will be enacted as Finance Act 2018) to loosen the conditions for EIS and venture capital trust reliefs for investments into KICs. This consultation is considering solutions to close that gap further.
The consultation considers two broad areas:
  • the capital gap for KICs and how a new KIC EIS fund might help to address it; and
  • the features of the proposed KIC EIS fund.
Capital gap for KICs
On the capital gap, the government is asking:
  • why some KICs are unable to obtain the patient capital they need;
  • what the best way of improving it would be, within the constraints of state aid; and
  • what barriers there currently are to the establishment of investment funds focused on KICs.
 KIC EIS fund structure proposals
The government identifies that there is a limited approach to EIS funds in the existing legislation, broadly enabling investors through a fund to be treated as if they had made the EIS investments themselves; and an accompanying option for the fund manager to seek HMRC approval to reduce the administrative burden. However, HMRC state that very few funds seek HMRC approval. To reduce complexity, any new fund structure would replace the existing fund arrangements.
The government’s approach to the new EIS fund is:
  • all fund managers would need to seek HMRC approval;
  • substantially all investments made by the fund would have to be into KICs, with a possible 10% to 20% allowance for non-KIC investment; and
  • investments through the new structure would still have to be equity investments.
The options the government is considering to incentivise investment into knowledge-intensive funds are:
  • a patient dividend exemption: giving investors an exemption from tax on dividends received from knowledge-intensive investee companies after a fixed holding period (with five or seven years being suggested);
  • capital gains relief: giving investors the opportunity to write off a proportion of their capital gains when they roll over investments into a KIC fund. A specific proportion is not proposed, but it is stated to be less than the current deferral relief for seed enterprise investment scheme investments, which is 50%;
  • extended carry back: allowing investors into KIC funds to carry back their investments, for the purposes of both income tax and capital gains deferral relief, further than the standard one year; and
  • upfront tax relief: enabling investors to get tax relief when they invest into the fund (rather than when the fund invests into an underlying KIC), provided the fund commits the funds within a specified time period (with two years being suggested).
  • The government confirms that:
  • the new fund structure will use the existing definition of a KIC;
  • it is not considering changing the rates of tax relief;
  • the new structure will not involve all of the tax incentives outlined above, only the most effective and targeted incentives;
  • the new structure will need to be robust to prevent its use for aggressive tax planning or capital preservation; and
  • any changes implemented before the UK leaves the EU will need state aid approval.
The consultation is open until 5 May 2018.
The government has stated in its new consultation status tracker ( that these changes are intended to be legislated in Finance Bill 2019 (‘FB 2019’, i.e. Finance (No. 3) Bill 2017–19, which will be enacted as Finance Act 2019). We might therefore expect to see draft legislation published this summer.
See Financing growth in innovative firms: Enterprise investment scheme knowledge-intensive fund consultation, available via

Entrepreneurs’ relief on gains made before dilution

Following its review of the environment for business growth in the UK and as announced at Autumn Budget 2017, the government is consulting on extending entrepreneurs’ relief so that individuals can continue to access the CGT relief where their shareholdings are diluted below the qualifying 5% level as a result of raising finance.
Entrepreneurs’ relief provides a lower 10% rate of CGT for gains on qualifying disposals of business assets, which include certain disposals of shares in a company by an individual where that individual has held at least 5% of the ordinary share capital prior to the disposal. Currently, the 10% CGT rate may be lost where the entrepreneur’s company issues new shares to raise capital and, as a result of not purchasing further shares themselves, the entrepreneur’s personal stake falls below 5%.
The consultation paper explains that there have been concerns that the 5% minimum shareholding requirement for entrepreneurs’ relief can act as a barrier to growth for some businesses. It can disincentivise entrepreneurs from seeking external investment and can encourage individuals to exit their businesses early, so as not to lose the benefit of the relief. This outcome conflicts with the relief’s intended purpose, which is to encourage enterprise.
The paper sets out some details on how entrepreneurs’ relief is proposed to be extended and invites views on how this will work in practice. Specifically, it makes the following proposals:
  • Individuals will be allowed to elect to be treated as having disposed of, and reacquired, their shares immediately before their shareholding is diluted as a result of external fundraising at their then-market value. (This will enable the individual to crystallise a gain, and thereby their entitlement to entrepreneurs’ relief, at a time when their shareholding is still at or above the 5% level.)
  • In order to avoid a ‘dry’ tax charge arising at the time of an election, individuals will be allowed to defer the accrual of the gain (and thereby the tax charge) on the deemed disposal until any of the ‘rebased’ shares are actually disposed of.
To ensure that the relief is properly targeted, the dilution of the individual’s shareholding must be a consequence of an issue of new shares made by the company for genuine commercial reasons. The consultation paper also touches on the interaction of the changes with the share pooling rules and rules for trusts, and sets out some detail on the precise time at which a deemed disposal would take place.
The amending legislation is proposed for FB 2019 and will apply in respect of fundraising events taking place on or after 6 April 2019. Comments on the consultation should be submitted by 15 May 2018 and the government will publish its response and draft legislation in summer 2018.
See Consultation: Allowing entrepreneurs’ relief on gains made before dilution, available via

Extension of security deposit legislation

As announced at Autumn Budget 2017, legislation will be introduced in FB 2019 to extend the scope of the existing security deposits legislation to include corporation tax (CT) and construction industry scheme (CIS) deductions, with effect from April 2019. The government has published a consultation which invites comment on proposals for implementing these changes.
HMRC currently has powers to require a security deposit in respect of certain taxes and duties, including VAT, PAYE and NICs. The legislative provisions of the security regime vary slightly to reflect the design of the individual tax or duty, but in all cases the power to require security is framed in broad terms and applies where HMRC considers it necessary for the protection of the revenue at risk. A criminal sanction may apply if a person doesn’t comply with a requirement to provide security and the courts may impose an unlimited fine.
It is intended that securities for CT and CIS will follow the existing regime as far as possible, and the power to require security will be framed in similarly broad terms. CIS corresponds quite closely with PAYE in terms of its structure and the frequency of filing and payment obligations, and will fit readily within the existing securities processes. However, the profits-based nature of CT and its calculation by reference to accounting periods that are up to, and most frequently, a year long, raises new issues which may necessitate a more tailored approach.
The consultation seeks input on numerous aspects of the extension, including: 
  • the forms of security that could be required; 
  • which entities should be within the scope of the CT security deposit regime; 
  • whether an instalment approach should be considered; and 
  • how the amount of security should be calculated.
Alongside this extension, and as announced at Autumn Budget 2017, the government will be looking more widely at options for tackling those who deliberately abuse the insolvency regime to avoid or evade their tax liabilities, including through the use of phoenixism. A separate discussion paper, Tax abuse and insolvency: a discussion document, will be published in due course, which will seek views on how to tackle the small minority of taxpayers who abuse the insolvency regime in this way. Extending the current securities provisions to CT and CIS complements that measure as it strengthens an existing tool for protecting future revenues where there is a proven history of contrived insolvency.
The deadline for responses to the consultation is 8 June 2018.
See Extension of security deposit legislation, available via

VAT registration threshold: call for evidence

As announced at Autumn Budget 2017, the government has published a call for evidence on the VAT registration threshold. This follows the publication of the Office of Tax Simplification’s report on routes to simplification for VAT, which recommended the VAT registration threshold be examined.
The current UK VAT registration threshold is £85,000. It is the highest in the EU (with the average in the EU and the OECD being around £29,000). Although a high registration threshold allows small businesses to avoid the administrative requirements of VAT, it may also encourage businesses with turnover just under the threshold to restrict their growth to remain under the threshold. The government is not minded to reduce the threshold, but is consulting on whether the design of the threshold could be improved to better incentivise growth. The call for evidence seeks views on:
  • how the threshold might currently affect business growth;
  • the burdens created by the VAT regime at the point of registration, and why businesses might manage their turnover to avoid registering; and
  • possible policy solutions, based on international and domestic examples, including the EU’s proposal for SMEs.
The call for evidence is open until 5 June 2018. The government would like responses from all interested parties, in particular small businesses that trade near the current VAT threshold.
See VAT registration threshold: call for evidence, available via

Alternative method of VAT collection: split payment

Following the call for evidence that was announced at Spring Budget 2017, the government is consulting further on the design of a split payment mechanism for online sales.
At Budget 2016 and Autumn Budget 2017, the government introduced a series of measures to tackle online VAT fraud and, in particular, the issue of overseas businesses selling goods to UK consumers without paying the correct UK VAT. The government is looking at introducing a split payment model as a new VAT collection mechanism for online sales as a further measure to tackle online VAT fraud.
A split payment model would harness technology to allow VAT to be extracted directly from transactions at the point of purchase, rather than relying on overseas sellers to account for VAT. This would reduce the cost of enforcing online seller compliance.
The consultation seeks views on:
  • who is best placed to effect the split of VAT from the gross payment (the government has concluded that the UK merchant acquirer is best placed, or where the merchant acquirer is not in the UK, the card scheme or card issuer);
  • how the process could work in detail;
  • the role of online marketplaces;
  • the amount to be split (standard rate, flat rate scheme or net effective rate);
  • other key considerations, such as whether the mechanism should be applied to all online sales (not just sales from overseas sellers), who remains responsible for the amount of VAT due and how refunds to customers should be processed; and
  • how long it might take for organisations to develop new payment technology and implement that technology.
The consultation is open until 29 June 2018. HMRC will also be running a series of workshops to test emerging views over spring and summer 2018 and invites interested parties to get in touch.
See Alternative method of VAT collection: split payment, available via

The role of online platforms in ensuring tax compliance by their users

HMRC has published a call for evidence on the opportunities and challenges presented by online marketplaces in the context of tax compliance. This builds on the measures in FB 2018 combating VAT fraud in online marketplaces and seeks to extend the discussion beyond VAT.
HMRC’s bulk data powers already enable it to obtain data from a variety of businesses so that it can identify non-compliance. However, in the case of online platforms, the data holder may be offshore, and so the data is not easy for HMRC to obtain.
HMRC has also consulted on ‘conditionality’ (in December 2017), making compliance with certain tax obligations a condition of holding some public sector licences. The new call for evidence suggests that these proposals could, in time, be developed so that tax checks become integrated into the platforms that businesses use to trade.
The questions posed by the call for evidence include:
  • what might help users of online platforms to understand their tax obligations;
  • what new opportunities online platforms provide for tax avoidance and evasion;
  • what data online platforms hold about their users, and whether this data could be utilised to help users understand when they might incur a tax liability; and
  • what experience businesses have of the approaches taken in different countries, and whether any of these could be replicated in the UK. For example, in some countries online platforms must provide users with a description of their tax obligations, while other countries provide voluntary or compulsory systems for online platforms to report details about users and their incomes directly to the tax authorities.
As this is a call for evidence rather than a consultation, the government has not committed itself to providing any follow-up within a particular timescale.
See Online platforms’ role in ensuring tax compliance by their users: call for evidence available via

Cash and digital payments in the new economy

HM Treasury has issued a call for evidence about what the government can do to:
  • support the increased use of digital payments across the UK economy by addressing barriers such as transaction costs and a lack of trust in and understanding of electronic payment systems
  • ensure that those who need to make cash payments can continue to do so, and that cash remains accessible (e.g. by preventing the closure of ATMs) and secure; and
  • crack down on the use of cash for tax evasion and money laundering.
In the context of tax evasion, the government notes that some countries (including France, Belgium and Spain) have placed legal limits, of amounts up to €15,000, on the size of cash transactions. These limits have been motivated by countering the financing of terrorism, but research suggests that cash thresholds can also have an impact on tax evasion and money laundering. The government is seeking views on whether the UK should introduce a similar threshold and, if so, what the level should be.
See Cash and digital payments in the new economy: call for evidence, available via

Taxation of self-funded work-related training

As announced at Autumn Budget 2017, the government is consulting on a proposal to extend the tax relief available for work-related training that is funded by employees and the self-employed.
At present, where an employer funds an employee’s work-related training, or an employee is reimbursed for the cost of their work-related training by an employer, employers are able to deduct the cost for tax purposes and employees are not taxed on the benefit (ITEPA 2003 ss 250–254). If, however, the employee funds the training and is not reimbursed, employees cannot currently receive tax relief, other than in limited circumstances when the training is an intrinsic contractual duty of their existing employment (see ITEPA 2003 s 336 and HMRC’s Employment Income Manual at EIM32535). Some respondents to the 2017 call for evidence on employee expenses suggested this position was unfair.
Currently, the self-employed can deduct the costs of training incurred ‘wholly and exclusively’ for their business where it maintains or updates existing skills (ITTOIA 2005 s 34), but cannot deduct the costs when the training introduces new skills as this is deemed to be expenditure of a capital nature (see ITTOIA 2005 s 33 and HMRC’s Business Income Manual at BIM35660).
The consultation is taking place at an early stage and does not set out specific options on how to extend the existing scope of tax relief for self-funded work-related training. Instead it asks for feedback on other UK and non-UK efforts of using the tax system to support individuals’ training, and sets out high-level objectives and design principles for any proposed reform for comment. Changes to the tax system for employers are outside the scope of the consultation.
The deadline for responses to the consultation is 8 June 2018. The responses will be used to inform future policy development, albeit the government has made no firm decisions about the issues as yet.
See Taxation of self-funded work-related training, available via

Other publications

The following calls for evidence and consultation responses were also published on 13 March 2018.
Tackling the plastic problem
As announced at Autumn Budget 2017, this call for evidence seeks input as to how changes to the tax system can be used to address single-use plastic waste by reducing unnecessary production, increasing reuse and improving recycling. The government asks respondents to consider the whole supply chain, from production and retail to consumption and disposal. The call for evidence closes on 18 May 2018.
See Tackling the plastic problem, available via
Tax treatment of heated tobacco products
Following a consultation (which closed on 12 June 2017), HM Treasury has published a response document which confirms that the government intends to create a new excise category for heated tobacco products. The government plans to publish draft legislation in summer 2018 for technical consultation and to legislate the change in FB 2019. The change will come into effect on royal assent.
See Tax treatment of heated tobacco products, available via
Business rates: delivering more frequent revaluations
Following a consultation on implementing more frequent revaluations (which closed on 8 July 2016), the government has published a summary of responses. The document confirms that the government will bring forward the next property revaluation for business rates by one year to 2021, with three-year revaluations taking effect in 2024. The document states the government has decided not to introduce self-assessment at this stage. Instead, valuations will continued to be carried out by the Valuation Office Agency. The summary of responses also announces that the implementation of the new business rate digital system for local authorities, announced at Budget 2016, will be delayed until after 2024.
See Business rates: delivering more frequent revaluations, available via
 VAT, APD and tourism in Northern Ireland
This call for evidence seeks views on the impact of VAT and air passenger duty (APD) on tourism in Northern Ireland. The consultation considers the impact that current VAT reliefs, exemptions and refunds have on tourism in Northern Ireland and whether changing the rate of VAT and APD would have a significant impact on tourism levels. The call for evidence closes on 5 June 2018.
See VAT, air passenger duty and tourism in Northern Ireland, available via

Future developments

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:
  • Tackling construction sector supply chain fraud: This is a technical consultation on draft legislation for a domestic VAT reverse charge. It follows a consultation at Spring Budget 2017 and government confirmation at Autumn Budget 2017 that the measure will be introduced from 1 October 2019. The new rules are designed to counter ‘missing trader’ fraud in construction industry supply chains, by shifting responsibility to the customer for paying VAT to HMRC where the customer is a VAT-registered construction business.
  • Transferable tax history for oil and gas: This is a consultation on draft legislation to introduce a transferable tax history for oil and gas companies. This follows a consultation that was published after Spring Budget 2017.
  • Petroleum revenue tax deduction for decommissioning costs: This is a consultation on draft legislation, announced at Autumn Budget 2017, to allow a petroleum revenue tax deduction for decommissioning costs incurred by a previous licence holder.

Responses to consultations:

  • VAT and vouchers: This is a response to the consultation, published on 1 December 2017, on changes to the VAT treatment of vouchers. This change will ensure that when customers pay with vouchers, businesses account for the same amount of VAT as when other means of payment are used. Legislation is expected in FB 2019
  • Large business compliance: This is a response to the consultation, published on 13 September 2017, on HMRC’s process for risk-profiling large businesses, to improve HMRC’s business risk review process.
New consultations:
  • Short term business visitors: This is a consultation on how to simplify the tax treatment of short term business visitors from the foreign branch of a UK company, to ensure that the UK is an attractive location to headquarter a business. This follows HM Treasury’s December 2017 response to concerns voiced by the asset management industry.
  • Gaming duty: review of accounting periods: This is a consultation to seek views on bringing the administration of gaming duty more into line with the other gambling duties.
  • Capital gains tax payment window: This is a technical consultation on the design of the system requiring CGT due on a disposal of residential property to be paid within 30 days of completion. This follows an original announcement at Autumn Statement 2015 and confirmation at Autumn Budget 2017 that the measure will be introduced.
  • Off-payroll working: This is a consultation, announced at Autumn Budget 2017, on how to tackle non-compliance with IR35 in the private sector, drawing on the experience of the public sector reform.
  • Profit fragmentation: This is a consultation, announced at Autumn Budget 2017, on the best way to prevent UK traders or professionals from avoiding UK tax by arranging for UK trading income to be transferred to unrelated foreign entities.
  • Taxation of trusts: This is a consultation, also announced at Autumn Budget 2017, on how to make the taxation of trusts simpler, fairer and more transparent.
In addition, the government’s new consultation status tracker ( confirms the government’s intention to legislate the outcome of the following consultations in FB 2019:
  • taxing gains made by non-residents on immovable property (see;
  • corporation tax treatment of lease payments under the new corporate interest restriction (see;
  • impact of the introduction of IFRS 16 (a new accounting standard for leasing which takes effect from 1 January 2019) on income and corporation tax (see; and
  • withholding tax on royalties (see 
This report was prepared by Lexis®PSL Tax. Lexis®PSL Tax provides lawyers with tax practice notes and precedents, with links to trusted sources.