Tax changes to create a Britain 'fit for the future'

As we anticipated, Philip Hammond’s Spring Statement was short. And it didn’t include any immediate tax changes. Instead, the Chancellor used this opportunity to address rapid changes in technology. There are plenty of challenges and opportunities this presents.

He announced that HMRC and The Treasury have begun several consultation processes. This means there’s the possibility of reform in the future. And it’s all part of Philip Hammond’s vision of a Britain that is ‘fit for the future’. Here are the highlights:

Incentives for innovation

For some time, the government has been intent on helping innovative businesses. This trend continues, with two new consultations on potential changes to Entrepreneurs’ Relief and the Enterprise Investment Scheme (EIS).

Entrepreneurs’ Relief – currently, founder-shareholders might be put-off from growing their business through investment. Why? This is in fear of dipping below the 5% shareholding required for Entrepreneurs’ Relief. So, to combat this, HMRC is inviting responses to potential new rules which will allow shareholders to ‘bank’ the benefit of Entrepreneurs’ Relief up to the point of dilution.

EIS – the Treasury is also consulting on extending the EIS rules for knowledge-intensive companies, which are – simply put –  certain companies carrying out research, development or innovation. The consultation includes creating new EIS funds to maximise the long-term, large-scale investments available to such companies.

Relief on training

HMRC is consulting on tax relief for the cost of work-related training incurred by employees. Work-related training would include both training for specialist qualifications and training to learn new skills to allow progression within an individual’s current role. It could also be training to change careers, something which is becoming more common.

This consultation shows the government believe a progressive workforce is essential to make sure the UK remains competitive and productive. It’s also important as technology continues to fill lower-skilled jobs.

Whatever the result, any system for relief must make sure the cost of recreational activities falls outside its scope and that the rules are easy to understand and administer. It must also be sustainable and affordable in its impact on public finances.

Tax in a digital world

User participation – The Treasury’s recent position paper highlights the limitations of international tax law when it comes to measuring value generated by user participation on digital platforms such as websites. User participation, which includes clicks and views of online content, can build brands and provide companies with valuable data. It’s proposed that international tax law will eventually be changed so the value created from user participation is subject to tax in the territory where the user is, irrespective of a company’s presence there.

Overseas businesses selling online – HMRC is also undertaking further consultation to address another problem. Overseas businesses have been selling online to UK customers without declaring VAT on the sales. The objective of the consultation: to agree on a method for using payment technology to collect VAT on online sales, transferring this directly to HMRC. 

The VAT threshold may change

We mentioned this may happen in our recent blog. HMRC has opened a consultation to review the VAT registration threshold. Under the current ‘cliff-edge’ arrangement, a business comes within the full scope of VAT once its turnover exceeds the £85,000 threshold. HMRC is considering options to smooth the transition for businesses becoming VAT registered.

To save our planet

The Treasury has published a call for evidence to address the environmental problems caused by single-use plastics. Taxation has been highlighted as one of a range of factors that may drive behavioural change to reduce single-use plastic waste.

Philip Rogers
Tax Partner

T: +44 (0)7748 321010

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