Budget tremors on anti-avoidance, not many thrills
When he opted to present a low-key “policy lite” Budget on Wednesday, Philip Hammond set out to show the House of Commons that in the absence of technical substance, he was more of a chilled-out, David Brent-style entertainer with a string of gags, many at the expense of the Opposition.
Dropping hints about the underlying impacts of Brexit during the speech, Hammond earned plaudits for his relatively passive stance on tax; the absence of habitual Budget tinkering is a step in its own right towards simplification.
“Never has the prospect of a boring Budget seemed so attractive,” commented RSM’s George Bull in his Budget preview newsletter.
While the Chancellor talked at some length about the additional £140bn that HMRC had raised since 2010 from tackling avoidance, evasion and non-compliance, most of the measures he cited were confirming things already set out in the Autumn statement.
A scan of the Red Book identified just a few measures with immediate effect to block tax loopholes:
- Businesses will no longer be able to convert capital losses into trading losses from Budget day, eliminating “an unfairness in the tax code which is being exploited by certain businesses”.
- New legislation effective from 8 March will require all profits realised by offshore property developers developing land in the UK (including pre-existing contracts) to be taxable.
- The Finance Bill will include clauses effective from 9 March 2017 applying a 25% tax charge on pension transfers to qualifying recognised overseas pension schemes (QROPS). This addition is intended to deter pension adventurers hunting out lower-rate jurisdictions. There will be exemptions, however, where people have a genuine need to transfer their pension, but “these will be tightly drawn”, according to Gabelle.
Beefing up promoter rules
The government will press on with the clauses in Finance Bill 2007 punishing those who promote tax avoidance schemes that are defeated at tribunal. The sanctions will be bolstered by eliminating the “reasonable care” defence of reliance on professional advice. The promoters of tax avoidance schemes (POTAS) regime is being beefed up to prevent promoters from reorganising their businesses to put themselves beyond the reach of the new regime.
Anti-avoidance plans for VAT
Finance Bill 2017 draft clauses will implement rules moving responsibility for disclosing VAT avoidance from taxpayers to scheme promoters from 1 September 2017, but a few more twists are in store to tighten up revenue losses from indirect tax. These include “use and enjoyment” provisions to ensure VAT is applied when mobile phones are used outside as well as within the EU. The measure will bring the UK in line with international norms and “ensure mobile phone companies cannot use the inconsistency to avoid UK VAT”, the Red Book noted.
The government is also consulting on a reverse charge mechanism to fight missing trader VAT fraud from construction subcontracting arrangements. It will alo publish a call for evidence on a new online VAT collection mechanism to record online sales. This could herald a move towards the central online register idea implemented last year in Italy that will allow the government to automate collection of VAT from online transactions (known as the “split payment”, according to The Treasury).
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