Before the Chancellor of the Exchequer Philip Hammond stood up to present the first of his new-style spring statements, it was clear that he had some room to manoeuvre – if he chose to use it. Tax receipts are strong and the economy is in better shape than might have been expected. But of course there are continuing worries about how public services such as the NHS will continue to be funded, how the Brexit transition will be paid for and what a post- Brexit economy will look like.
Many had hoped that the Chancellor would use the opportunity to set out a tax road map for the UK after Brexit.
On the face of it, that is exactly what he did not do. Instead, he announced the publication of 13 tax calls for evidence and consultation documents. The Chancellor also promised ‘support to hard-working families through lower taxes’ although he gave no details as to what those lower taxes might look like.
However, putting all the pieces together rather different picture emerges:
- if the income tax burden on low- and middle-income groups is to be reduced, the spring statement suggests that those tax reductions will be more than compensated for by changes to the tax base including the taxation of the digital economy and VAT changes;
- after years of concentrating on tax avoidance, new measures will be introduced to tackle the tax gap by clamping down on tax evasion through the cash economy, through internet sales and through the non-payment of VAT liabilities; and
- a number of other measures will also be introduced to help investors and businesses in a targeted way.
On the digital economy, HMRC has published an updated position paper which explores the imposition of revenue-based taxes on digital businesses, while protecting start-ups and growth companies. While the government's preferred route is to reform the whole framework of international taxation, it's looking increasingly likely that the UK, and perhaps other nations, will move towards revenue-based taxation of digital businesses until such time as an international accord can be reached.
After years of concern that the UK's high VAT-registration threshold, currently £85,000, distorts business behaviour and results in a bunching of turnover immediately below the threshold, the government will consider the options including a significant reduction in the threshold. That of course could significantly increase VAT costs to people who engage businesses which are currently below the VAT registration threshold, such as painters and decorators, handymen and gardeners.
Turning to tax evasion and non-payment of tax, the government has issued a call for evidence on the role of cash and digital payments in the new economy. On the face of it, the aim will all be almost impossible to achieve: to explore how the government can simultaneously support digital payments and ensure that the ability to pay by cash is available to those who need it, while cracking down on those who use cash to evade tax and launder money.
Sticking with the protection of tax revenues, the government will also be looking at how online platforms and marketplaces could work with HMRC to help people who make money through the platforms understand and meet their tax obligations. Continuing with the theme of online shopping, HMRC is also consulting on possible options to prevent overseas internet sellers from failing to comply with their VAT obligations by charging the correct amount of VAT and paying it to HMRC.
On VAT, the government is calling for evidence that VAT and air passenger duty are having an adverse impact on tourism in the UK, and particularly in Northern Ireland. If, as a result of this, the government decides to relax the VAT and APD regime for tourism in Northern Ireland, it is difficult to see how it could resist calls to make similar relaxations in Wales, Scotland and England.
While these are all ‘big-picture’ measures, arguably the biggest measure is aimed at a problem which is beyond the ability of any single government to solve. That is of course the plastic problem and the way the tax system or charges could be used to reduce the amount of single-use plastics which are wasted. The government’s approach is to call for evidence and to explore possibilities of pushing through change via both innovation and the tax system. If the UK is prepared to commit to this, it is to be hoped that other countries will join in to accelerate the impossibly slow 25-year timescale for this.
When the Chancellor began cracking jokes within one minute of beginning his statement, my heart sank as I felt the levity might be used as a substitute for substance. When tested against reasonable expectations of what could be achieved, I am encouraged to see:
- indications as to the future shape of the UK tax base;
- a clampdown on tax evasion through the cash economy, through internet selling platforms and through the non-payment of VAT on internet shopping; and
- the beginnings of a project to address plastic pollution.
While it would be easy to be critical of the many shortcomings of the statement, it is also clear that the Chancellor is very willing to consult, to listen, and to test ideas before deciding which ones to implement and how.
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