HMRC Tax Consultations
Following today’s [13 March 2018] Spring Statement, we have summarised below the key new HMRC tax consultations that are being run:
Allowing Entrepreneurs’ Relief on gains before dilution
HMRC today published a consultation on allowing Entrepreneurs’ Relief where an individual’s required 5% stake in the company is diluted due to the company issuing new shares. Under current legislation, in such cases the individual’s entitlement to Entrepreneurs’ Relief (which reduces the tax rate on eligible gains to 10%) is lost.
The Government do not wish to discourage Entrepreneurs from seeking external funding to grow their businesses and, therefore, the Consultation considers HMRC’s proposal that such individuals be treated as if they had disposed of their shares and reacquired them immediately before the dilution took place. The individual will then be able to claim Entrepreneurs’ Relief either at the point of the deemed disposal or when the shares are actually sold in the future.
We are happy to advise any individuals who believe that they may be entitled to Entrepreneurs’ Relief, so that their eligibility for the relief can be checked and reviewed ahead of any dilution or disposal.
Collecting VAT directly from customers
The government has made a call for evidence to enable them to initiate a new VAT collection mechanism whereby banks would automatically divert a percentage of funds from payments to suppliers directly to HMRC.
This will be made possible by taking advantage of recent technological innovations and aims to make the collection of VAT fit for the digital age. These measures will initially focus on online sales but could then be rolled out to other sectors, once the system has been developed successfully.
From the outset, the legislation would require certain online businesses to register with HMRC and this application would then be linked to the businesses bank account. The customer would make a payment to the business and the bank would automatically intercept this payment and divert funds to HMRC before sending the remaining amount to the business.
If implemented correctly, this has the potential to reduce the VAT administrative burden from certain businesses but we will await final clarification of the rules and communicate this to you accordingly.
Similar systems are already in use by other countries and have been successfully used as a mechanism to withhold tax at the point of sale to prevent loss of income for the Treasury.
This consultation is due to end on 29 June 2018 and would potentially pave the way for a radical overhaul of the way VAT is collected by HMRC in the UK.
VAT Registration Threshold
HMRC have today opened a consultation on the current design of the VAT threshold. The Government feels that this is discouraging small businesses and sole traders from growing their business.
The UK’s VAT threshold of £85,000 is the highest in the EU, with the average threshold being £29,000. Whilst the Chancellor has announced that the VAT threshold will remain at its current level for the next two tax years (so until April 2020), this consultation may well result in a change in the level of the threshold and its current “cliff edge” design in the future.
The consultation closes in early June and we will provide an update on its outcome in due course.
Corporate Tax and The Digital Economy
Notwithstanding the significant steps already taken to tax multi-nationals on their “fair share” of the income they generate, the paper announces that:
- “The government will take more immediate action against multinational groups, primarily in the digital sector, who achieve low-tax outcomes by holding their valuable intangible assets such as intellectual property in low-tax countries where they have limited economic substance. This action, which is taken in accordance with the UK’s international treaty obligations, will help to prevent groups achieving unfair competitive advantages in the UK market in which they operate. It will also help to ensure that the discussion on how value is created by the users of certain digital businesses starts from a more sustainable position.”
It is not yet clear how the Government plans to tackle the Digital Economy and indeed the paper released on the point at this stage only sets out the issues, but one solution that has been suggested is the possibility of a tax on revenues generated from the provision of digital services to the UK market.
Of course, though, the government have given us all assurance that it “wants the UK to be the best place to start and grow a digital business, and is committed to supporting the continued growth and success of the UK’s world-class tech sector” and that “This is about ensuring businesses are taxed where they generate value and ensuring that technological developments do not undermine long-standing tax principles. In effect, we want to update the international tax system for the digital age.”
Enterprise Investment Scheme (EIS) Consultation
HMRC have today opened a consultation into the possible creation of an EIS “fund” for investment in innovative, knowledge-intensive companies, as it has been identified that such companies struggle to get the funding they need to grow as they often need a high level of investment to enable them to bring products to market. Such Funds will be based on the existing EIS model and incentives may be offered to encourage investment. The design of the Fund would need to ensure value for money for the taxpayer, as well as ensuring fairness across the tax system and prevent it being used for aggressive tax planning.
The consultation aims to identify the capital gap that such companies experience and to seek views on how that gap might be closed, with responses and comments invited until 11 May, when the consultation closes.
CHARTER TAX CONSULTING LIMITED
11 ST JAMES'S PLACE
The information provided by Charter Tax Consulting Limited is general in nature and does not constitute specific tax advice. Professional advice should be sought before deciding on a course of action, or refraining from a certain action, arising from the above information. Tax legislation changes regularly and information contained herein is provided based on legislation as at 13 March 2018
Taxation planning concerns the application of complex statute and case law to future events. Accordingly, however expert the opinion given, it is always possible that the Courts will take a different view of the application of the law. We undertake to apply reasonable care and skill in the provision of advice. We do not guarantee that tax planning steps will in all circumstances achieve a certain legal effect.