TAX FACULTY WEEKLY NEWS UPDATE Newswire: 903 This is a summary of the key tax events for the week ended 18 March 2018. It has been compiled by Anita Monteith, Jane Moore and Ian Young. This newswire contains all the individual postings we have made to the Tax Faculty website over the past seven days. It includes both news items (ion.icaew.com/taxfaculty) and new discussions (ion.icaew.com/taxforum). CONTENTS TAXtalk on Wednesday 14 March Spring Statement 2018, tax consultations and IR35 1 Spring Statement 2018 Tax Faculty overview 1 Spring Statement 2018 new tax consultations 2 Making Tax Digital for VAT regulations are now in place 5 Making Tax Digital (MTD) for income tax pilot opened up to more businesses and agents 5 HMRC phone calls to agents calls backs and unsolicited calls 6 First devolved taxes for Wales go live on 1 April 2018 7 Combatting online VAT fraud 7 OECD Interim Report on tax challenges arising from digitalisation 8 TAXtalk on Wednesday 14 March Spring Statement 2018, tax consultations and IR35 If you missed the March 2018 edition of TAXtalk, you can watch it now on the TAXtalk home page. All our TAXtalks are free. The main topics of discussion were the various consultation documents that were published shortly after the Chancellor delivered his first Spring Statement on 13 March 2018 although we are yet to see the consultation to extend the off-payroll working rules to the private sector. We also provided an overview of the key year-end employer tax obligations. TAXtalk is an informal discussion on matters of topical interest in tax. This month we also looked at the government s response to the Matthew Taylor report into modern working practices and the Treasury s call for evidence on the use of rent-a-room relief. Spring Statement 2018 Tax Faculty overview The Chancellor of the Exchequer delivered his Spring Statement on 13 March 2018. There was a little about tax in the speech, though a number of new consultations were announced at the same time. In this news item we give an overview of the statement and what it told us about the public finances. The new consultations will be summarised in a separate news item. 1
You can read the full speech at Spring Statement 2018: Philip Hammond's speech A recent Tax Faculty news item explained the new fiscal timetable and why we now have a Statement, not a Budget, in the Spring. The speech The Chancellor had billed this as a brief statement where he would update Parliament on the forecasts by Office for Budget Responsibility (OBR), spending commitments and new consultations. The forecasters predicted that the speech would last for about 15 to 20 minutes but, like many forecasts, it proved to be rather wide of the mark as the Chancellor spoke for nearly 30 minutes. But, with the exception of mentioning the publication of some new consultation documents, he stuck to his word and made no new tax announcements or changes to take effect immediately or on 6 April. This certainly is a welcome development let us hope it lasts! The public finances The meat of the speech was commenting on and responding to the OBR s Budget forecasts. The Chancellor s message was upbeat but the OBR took a rather more cautious approach: growth was higher than forecast at the time of the 2017 Autumn Budget and the forecast deficit for 2017/18 was revised down from 49.9bn in Autumn 2017 to 45.2bn, a reduction of 4.7bn. However, the OBR s view is that much of the improvement in borrowing since November is cyclical, with the forecast for the structural deficit little changed on average and just 0.3bn better by 2020/21. Clearly, the UK s structural deficit has improved since 2010 but real longer-term improvements appear to be harder to achieve. However, forecasting is not an exact science and can vary widely: the 2017/18 deficit is now almost 10% lower than predicted as recently as November. But it is important to remember that what goes down, could equally well go up. The costs of Brexit The OBR has sought to put a cost on Brexit and this is set out in Annex B of the OBR s report. The final total cost is quoted as 37.1bn, with 16.4bn payable up to 2020 and potentially 18.2bn over the following eight years to 2028, with a few billion pounds elsewhere. As compared to the overall UK finances, the numbers while significant are not huge sums, and much of it is already committed expenditure under existing obligations. The consultations 10 new consultations and three updates on previous consultations were published on 13 March 2018. In addition, a written ministerial statement gives details of what consultations and consultation responses will be published in the coming months. The government has also published a consultation tracker, to show the status of current and closed policy consultations through their lifecycles. Spring Statement 2018 new tax consultations A number of new consultations were published on the same day as the Chancellor of the Exchequer delivered his 2018 Spring Statement. This news item lists the consultations with brief details of each. A separate news item gives an overview of the Spring Statement. The consultation documents published on 13 March are: 1. Taxation of self-funded work-related training 2
2. Corporate tax and the digital economy (position paper) 3. Cash and digital payments in the new economy 4. Online platforms role in ensuring tax compliance by their users 5. Allowing entrepreneurs relief on gains made before dilution 6. Financing growth in innovative firms: enterprise investment scheme knowledge-intensive fund consultation 7. Extension of security deposit legislation 8. Business rates: delivering more frequent revaluations (consultation outcome) 9. VAT registration threshold: call for evidence 10. Alternative method of VAT collection split payment 11. VAT, air passenger duty and tourism in Northern Ireland 12. Tax treatment of heated tobacco products (consultation outcome) 13. Tackling the plastic problem These comprise 10 new consultations and three updates on previous consultations. In addition, a written ministerial statement published on 13 March gives details of what consultations and consultation responses will be published in the coming months. New consultation tracker The government has published a consultation tracker, designed to help tax professionals follow consultations and resulting legislation through their lifecycles. Presented as a spreadsheet, the tracker shows when a policy was first announced, the consultation timetable, and which Act is expected to contain the legislation. The Tax Faculty welcomes this development. The 13 consultations are: Taxation of self-funded work-related training How to improve the way the tax system supports self-funded work-related training by employees and the self-employed, including whether tax is the most effective policy lever. The outcome should prevent misuse on recreational activities, be sustainable for public finances and be simple to understand and administer. Taxation of self-funded work-related training Corporate tax and the digital economy The government has published an updated position paper on a more appropriate way to tax digitalised business models within the economy. The government believes that user participation and engagement in some digitalised business models creates value and it is working to reach an international consensus as to how such value can be taxed, but remains prepared to take interim, unilateral, action such as revenue-based taxes. Corporate tax and the digital economy: position paper Cash and digital payments in the new economy The government has published a call for evidence to understand how the move to digital payments (only 15% of payments were still made in cash in 2015) is affecting the UK economy and to ensure that those that need, or want, to continue to pay in cash can do so. It is also investigating the use that some make of the cash payment system to evade tax and launder money. Cash and digital payments in the new economy Online platforms role in ensuring tax compliance by their users This call for evidence is in relation to internet platforms that enable users to make sales and rent goods and services online. HMRC has already done work in the VAT area and now wants to better understand how platforms interact with their users currently, what they know about them, and the attitudes to tax among people earning money through platforms. Online platforms role in ensuring tax compliance by their users Entrepreneurs relief on gains made before dilution Current rules entrepreneurs relief (ER) require the individual to hold at least 5% of the ordinary share capital for 12 months before disposal, but problems arise if their shareholding is diluted before sale. 3
The government is proposing changes to ER so that individuals in this situation can still claim relief. The consultation explores the mechanism to be used to achieve the objective. Allowing entrepreneurs relief on gains made before dilution Enterprise investment scheme knowledge-intensive funds The government is looking for ways to encourage investment in knowledge-intensive companies, as these businesses have been identified as having most difficulty in obtaining the finance required to help them grow. Financing growth in innovative firms: enterprise investment scheme knowledge-intensive fund consultation Extension of security deposit legislation This consultation seeks to extend the security deposit regime to corporation tax and construction industry scheme deductions from April 2019. Using a deposit as security is not uncommon and the government hopes that extending the scheme to other taxes will achieve a further reduction in noncompliant businesses. Extension of security deposit legislation Business rates consultation outcome The results of the consultation on business rates published following the 2016 budget have been issued as part of the Spring statement. In future valuations will be carried out every three years, rather than every five years. The next revaluation will be brought forward a year to 2021. The Valuation Office Agency will continue to be involved with self assessment being shelved for now at least. Business rates: delivering more frequent revaluations VAT registration threshold The current design of the VAT registration threshold may be deterring small businesses from growing their business and improving their productivity. This was noted by the Office of Tax Simplification in its review of VAT published last year, which recommended that the government examine the current approach to the VAT threshold. This call for evidence explores the effect of the current VAT registration threshold on small businesses, suggests possible different policy options, and asks whether those options could better incentivise growth. VAT registration threshold: call for evidence VAT collection split payment This consultation asks for views on potential options for a split payment mechanism. This would utilise payments industry technology to collect VAT on online sales and transfer it directly to HMRC, with the aim of significantly reducing online VAT fraud. Alternative method of VAT collection split payment VAT, air passenger duty and tourism in Northern Ireland This call for evidence seeks to discover the significance of any impacts that VAT and/or APD have on tourism in Northern Ireland, and how VAT and/or APD might be used to support the growing success of the sector. VAT, Air Passenger Duty and Tourism in Northern Ireland Tax treatment of heated tobacco products The government has published its response to the previous consultation and announced its intention to create a new excise category for heated tobacco products. Tax treatment of heated tobacco products Tackling the plastic problem This call for evidence will explore how changes to the tax system or charges could be used to reduce the single-use plastic waste. The government will consider all options for using the tax system to address single-use plastic waste and to drive innovation. Tackling the plastic problem Forthcoming consultations The written ministerial statement lists quite a number of consultations to be published in the coming months. Of particular interest to tax professionals are: 4
Off-payroll working how to tackle non-compliance in the private sector, drawing on the experience of the public sector reform. Tackling corporate insolvency and phoenixism risks a discussion document. Tackling construction sector supply chain fraud draft legislation for a VAT reverse charge, to help eliminate missing trader fraud in construction industry supply chains. Profit fragmentation how to prevent UK traders or professionals from avoiding UK tax by arranging for UK trading income to be transferred to unrelated foreign entities. Short term business visitors how to simplify the tax treatment of short-term business visitors from the foreign branch of a UK company Capital gains tax payment window new rule for CGT on a disposal of residential property to be paid within 30 days of completion. Taxation of trusts a consultation on how to make the taxation of trusts simpler, fairer and more transparent. Large business compliance a response to the consultation into HMRC s process for risk-profiling large businesses. Making Tax Digital for VAT regulations are now in place The secondary legislation for Making Tax Digital (MTD) for VAT was laid before the House of Commons on 28 February 2018. The legislation is now on the statute book as regulation 261/2018: The Value Added Tax (Amendment) Regulations 2018. The primary legislation is included in Finance (No 2) Act 2017. There were two significant changes from the draft regulations: If a business ceases to have an obligation to meet MTD for VAT requirements it will not be required to preserve records in functional compatible software; other formats (still to be specified) will be acceptable. HMRC has been given the power to vary the information that must be kept electronically where it is likely to be impossible, impractical or unduly onerous to do so. How HMRC will use this power should become clear when the final VAT notices are published; this power is helpful as it will allow for pragmatic solutions to practical issues eg, situations where records are maintained by third parties. ICAEW made a representation (18/18) on the draft regulations and notice. The final notices for MTD for VAT are expected to be published in the next few months (before the MTD for VAT pilot moves to public beta). The legislation and official guidance section of the ICAEW MTD hub has full information on the progress on MTD consultations and legislation. Making Tax Digital (MTD) for income tax pilot opened up to more businesses and agents The MTD for income tax pilot has moved from controlled go live to public beta and the software will now be tested on a larger scale. For the first time it is possible for businesses to sign up to MTD for income tax on gov.uk: Use software to send income tax updates. Agents can sign up on Agents: use software to send income tax updates. If they have not already done so, the first step for agents is to sign up for an agent services account. Guidance on how to sign up is now available on gov.uk: Get an HMRC agent services account. 5
Initially, taxpayers will be eligible to participate in the public beta pilot if they are a self-employed sole trader with income from one business. The plan for the next stage is to extend eligibility to those with income from property, with further groups of taxpayers being brought in as new functionality is added. HMRC has published the first list of MTD for income tax compatible software products. The list includes just two software suppliers: IRIS (for use by agents) and Rhino (for use by businesses) but other suppliers are expected to move to public beta and be added to the list very soon. If a business or agent is already using software they should check with their supplier when they expect to provide MTD compatible products. HMRC has also made available new service availability pages for the agent services account and for MTD for income tax. A government announcement on 13 July 2017 stated that MTD for income tax will not be made mandatory until the system is working well and not before 2020 at the earliest. The MTD for VAT pilot is expected to start in April 2018. HMRC is seeking volunteers but will be inviting only a small number of businesses to join the pilot at that stage, before moving on to public beta during the summer. The Tax Faculty would welcome feedback from members on their experiences of the pilots. Please email taxfac@icaew.com. HMRC phone calls to agents calls backs and unsolicited calls Following discussions between the professional bodies and HMRC, under the auspices of the Issues Overview Group, the following protocols for HMRC call backs and unsolicited calls to agents have been agreed: Agent single use passwords for call backs Where an agent requests a call back for a self assessment or PAYE issue that cannot be dealt with during their initial call to HMRC, HMRC will take a password from the agent to be quoted by the HMRC officer who makes that call back. The password will be for that call only. Unsolicited calls from HMRC There is a process in place for unsolicited calls from Debt Management and Banking (DMB) and VAT departments when an agent requires proof that the call is genuinely from HMRC. DMB can be asked to quote two characters from the agent reference number. They may also make reference to earlier contacts or information held. VAT will quote the 4 digit ID as an extra assurance. Callers will also offer a call back should the agent remain concerned. Unsolicited self assessment and PAYE calls may be made by HMRC if there is a need to discuss correspondence recently received by HMRC. Callers will offer reference to earlier correspondence or phone calls as proof of identity. Self assessment, PAYE, DMB and VAT are the most likely departments of HMRC to require these processes. Please provide feedback if either of these situations regularly occur with other departments within HMRC so that we can explore a similar solution if it is necessary. 6
Contact re VAT repayments from the TRUCE team Members have, in particular, raised concerns about calls from HMRC s TRUCE team which deals with VAT repayments. VAT repayment returns are subject to prepayment checks to prevent repayments for fraudulent claims and those made in error. HMRC uses an automated risk assessment system, TRUCE (Transaction Risking Upstream in the Connect Environment) to profile VAT repayment returns and to identify those where there is an increased risk of error or fraud. Those identified as low risk have their repayments released automatically. Where high or medium risk returns are identified, HMRC conducts an assessment of the return, which may involve contacting the trader or their agent for further information. It can prove difficult to establish that phone calls from this team are genuine. If an agent or business is concerned they can ask for the matter to be put in writing, but it is important to respond promptly to the letter when it is received or the request for repayment will be cancelled. First devolved taxes for Wales go live on 1 April 2018 The first devolved taxes for Wales go live on Sunday 1 April 2018. The taxes concerned are: Land Transaction Tax (LTT) LTT will replace Stamp Duty Land Tax (SDLT). LTT will be collected by the Welsh Revenue Authority (WRA) rather than HMRC. HMRC will reject any SDLT returns relating to Welsh land with an effective date of transaction on or after 1 April 2018. Conveyancers or solicitors representing people buying and leasing property and land in Wales need to register on the WRA website before filing an LTT return. The WRA is encouraging businesses to sign up at least 10 days before their first transaction that includes LTT. You can access transitional guidance and the LTT rate calculator through following the links on gov.uk news story. The rates of LTT for residential property were originally set by the Welsh Minister for Finance on 3 October 2017 but, following the introduction of the SDLT exemption for first time buyers of residential property up to 500,000, announced in the UK Autumn Budget in November 2017, the Welsh Finance Minister announced revised land transaction tax residential rates in December 2017. The Welsh Government decided not to introduce an equivalent of the SDLT first time buyers relief but instead has increased the threshold at which LTT first becomes payable to 180,000. The average property price for a first-time buyer in Wales is 135,000. Landfill Disposals Tax (LDT) LDT will replace Landfill Tax in Wales and is payable by landfill site operators in Wales. LDT will also be administered by the WRA and landfill site operators will need to register with the WRA. Further change from April 2019 With effect from April 2019, devolved income tax rates are also coming to Wales, mirroring similar changes already in place in Scotland. At this stage we do not know what the rates and bands will be. The Welsh Government may decide to keep them the same as those for the UK but, if the Scottish experience is a guide to what might happen, we are likely to see some changes made. Combatting online VAT fraud The new powers for joint-and-several liability (JSL) for online marketplaces came into force with Royal Assent of the Finance Act 2018 on 15 March 2018. The new rules make online marketplaces liable for VAT where they knew or should have known that an overseas online seller should have been VAT registered, but was not. 7
Marketplaces must now also make sure sellers using their platforms display a valid VAT number on the site, when they are given one. This will help buyers make an informed choice about buying goods from a VAT registered businesses with confidence. Financial Secretary to the Treasury, Mel Stride, said Whilst the honest majority pay what they owe, some businesses that sell goods online to UK shoppers are failing to pay the correct amount of VAT. This behaviour unfairly undercuts businesses trading in the UK that play by the rules, abuses the trust of buyers, and deprives the government of significant revenue that funds vital public services. We are clear that everyone must pay their fair share of tax, and tackling tax evasion in all its forms is a top priority for the government. As well as this, businesses can apply to register for the Fulfilment House Due Diligence Scheme from 1 April 2018. This scheme, which was first announced at Budget 2016, will require businesses that store imported goods for, or on behalf of, overseas sellers from outside the EU to keep certain records and perform certain checks on the goods they are storing. Further information can be found using the following links: guidance on VAT: online marketplace seller checks guidance on VAT: businesses that sell goods in the UK using online marketplaces measures announced in Autumn Budget 2017 measures announced in Budget 2016 guidance on the Fulfilment House Due Diligence Scheme OECD Interim Report on tax challenges arising from digitalisation On Friday 16 March 2018 OECD published its Interim Report on tax challenges arising from digitalisation and, on the same day, broadcast a Tax Talk to discuss the interim report. OECD also issued a Press Release. The OECD Interim Report will be presented by Angel Gurria, OECD Secretary-General, to the meeting of the G20 Finance Ministers and Central Bank Governors in Buenos Aires, Argentina from 18 to 20 March. The Interim Report has been prepared by the OECD Task Force on the Digital Economy (TFDE), under the auspices of the Inclusive Framework of more than 110 countries. The TFDE has carried on its work from the initial Base Erosion and Profit Shifting (BEPS) Action Plan, 2013 to 2015, which lead to BEPS final reports being published and approved by the G20 in November 2015. On Action 1, Addressing the tax challenges of the Digital Economy, a Task Force on the Digital Economy continued in existence with a new mandate in January 2017. The initial report published in November 2015 came to no firm conclusions, nor did it make specific recommendations. The current work is intended to produce a final report in 2020 and the current interim report is work in progress towards that final report. The interim report is more than 200 pages long and is broken down into 8 chapters. Major chapters in the interim report are discussed below. Chapter 2 is the longest chapter and contains a detailed analysis of the theory of value creation and how digitalisation has been used to create new and different business models and how these operate in practice. Key features of the digitalised economy are scale without mass in other words quite 8
significant activity in a particular country without the traditional physical presence and the increasing role played by intangibles in creating value. Chapter 3 discusses the implementation and impact of relevant BEPS actions. Chapter 4 is a summary of what countries have done to date. These are grouped into four categories: (i) alternative applications of the PE threshold; (ii) withholding taxes; (iii) turnover taxes; and (iv) specific regimes targeting large MNEs. Chapter 5 looks at the key principles of international tax based on nexus and profit allocation between countries. The BEPS Project produced a substantial renovation of these international tax rules, underpinned by the principle that the location of taxable profits should be aligned with the location of economic activities and where value creation take place. The broader challenges raised by the digitalisation of the economy chiefly relate to the question of how taxing rights on income generated from cross-border activities in the digital age should be allocated among countries. The chapter then looks at the views taken by groups of countries. One group thinks that some more specific targeting of tax regimes would address the digitalised economy problems, while a third group thinks that BEPS will itself address these issues. The second group of companies thinks the problem is broader than just a limited number of highly digitalised businesses and identify two challenges posed by the digitalised economy: First, [the digitalised economy] raises a profit allocation issue, as more and more profit is dependent on non-physical and mobile value drivers (e.g., various types of knowledge-based capital). Second, it raises a nexus issue, as the limited or lesser need for physical presence to carry on economic activities challenges the extent to which the existing PE definition (e.g., a fixed place of business ) is still a relevant nexus for determining the jurisdiction in which to tax business income. (paragraph 392) Chapter 6 looks at the possibility of interim measures while recognising that countries think that a more permanent solution should be the ultimate goal. There is no firm recommendation to introduce interim measures but there are some design features identified to ensure that the potential risks and disadvantages of such interim measures are minimised and guidance will help to mitigate the risk of unilateral and uncoordinated measures. Chapter 7 looks at other changes brought about by digitalisation, such as the gig economy and sharing platforms to provide transport and accommodation as well as ways in which the tax systems themselves can be changed and improved by digitalisation. Other concurrent work on the challenges of the digitalised economy The European Commission is working on a draft Directive for fair taxation of the digital economy and we reported, Taxing the digitalised economy, on the ICAEW response to its 2017 questionnaire and also on our response to the UK November position paper on Corporate Tax and the digital economy. We anticipate proposals from the EC before the end of March. The UK government published, at the time of the Spring Statement on 13 March, an updated position paper on Corporate tax and the digital economy and there has also been a UK consultation on Royalties withholding tax as one of the interim measures which are discussed in the OECD interim report. ICAEWA responded to the latter consultation in February. 9
ICAEW Tax Faculty Chartered Accountants Hall T +44 (0)20 7920 8646 Moorgate Place E taxfac@icaew.com London EC2R 6EA icaew.com/taxfac Copyright ICAEW 2018 All rights reserved. If you want to reproduce or redistribute any of the material in this publication, you should first get ICAEW s permission in writing. ICAEW will not be liable for any reliance you place on the information in this material. You should seek independent advice. Laws and regulations referred to in this publication are stated as at the date of publication. Every effort has been made to make sure the information it contains is accurate at the time of creation. ICAEW cannot guarantee the completeness or accuracy of the information in this publication and shall not be responsible for errors or inaccuracies. Under no circumstances shall ICAEW be liable for any reliance by you on any information in this publication. About ICAEW ICAEW connects over 149,000 chartered accountants worldwide, providing this community of professionals with the power to build and sustain strong economies. Training, developing and supporting accountants throughout their career, we ensure that they have the expertise and values to meet the needs of tomorrow s businesses. Our profession is right at the heart of the decisions that will define the future, and we contribute by sharing our knowledge, insight and capabilities with others. That way, we can be sure that we are building robust, accountable and fair economies across the globe. ICAEW is a member of Chartered Accountants Worldwide (CAW), which brings together 11 chartered accountancy bodies, representing more than 1.6 million members and students globally. About the Tax Faculty Internationally recognised as a source of expertise, the Tax Faculty is a leading authority on taxation. It is responsible for making submissions to tax authorities on behalf of ICAEW and does this with support from more than 130 volunteers, many of whom are wellknown names in the tax world. 10