Spring Statement 2019 confirms Making Tax Digital and Digital Services Tax

Mar 19, 2019

Last week the Chancellor of the Exchequer delivered his Spring Statement to the House of Commons. Whilst his statement contained no new tax announcements, it was accompanied by a Written Ministerial Statement (“WMS”) which clarified and reaffirmed a number of tax matters including the government’s plans for Making Tax Digital (“MTD”) and confirmation of its “light touch” approach to MTD. A number of tax related documents were also published. 

It seems the UK will press ahead with a unilateral digital services tax from 1 April 2020 the consultation for which closed last month. The WMS refers to a consultation on the detailed design and implementation of this tax that will be issued “in the coming months” and confirms the effective date of 1 April 2020. 

The statement also reaffirmed the Government’s commitment to Making Tax Digital (“MTD”). Businesses with taxable turnover above the VAT threshold (currently £85,000) will have to keep their VAT records digitally and submit their VAT returns using MTD compatible software for VAT periods starting on or after 1 April 2019, as part of MTD for VAT. Certain businesses are not required to do so until 1 October 2019. 

According to HMRC, the VAT pilot service is progressing well. Over 46,000 businesses are in the pilot and over 200 MTD compatible software products are available, including some free products, with over 140 existing subscription products being updated at no cost.

The WMS confirms that there will be a “light touch” approach to penalties in the first year of implementation of MTD. Where businesses are “doing their best to comply, no filing or record keeping penalties will be issued”. The statement also reaffirmed that the Government will not be mandating MTD for any new taxes or businesses in 2020. 

The WMS also included a list of consultations expected to be issued over the coming months and HMRC also published a number of policy papers and responses to recent consultations.

Last week the following documents were published:-

  • Tackling tax avoidance, evasion and other forms of non-compliance –a policy paper setting out the government’s achievements.
  • Offshore tax compliance strategy: No Safe Havens 2019 - a policy paper setting out the direction for HMRC’s updated strategy for offshore tax compliance, bringing together the government’s response to all forms of offshore non-compliance.
  • Structures and buildings allowance –draft legislation has been published for comment on introducing a new, permanent allowance for investments in non-residential structures and buildings as announced at Budget 2018. The government intends to lay this legislation early this summer.
  • Aggregates levy review - a discussion paper launching a review of the Aggregates Levy, including the terms of reference, information on timing and scope of the review as well as membership of an expert working group.

In the coming months the government will publish:

  • Offshore receipts in respect of intangible property – draft regulations to ensure the provisions apply as intended, and draft guidance relating to the practical application of the measure.
  • Hybrid and other mismatches - draft regulations to update the definition of regulatory capital instruments that are entitled to an exemption within the hybrid mismatch rules.
  • General anti-abuse rule (GAAR) amendments - a technical note alongside draft legislation on minor procedural and technical changes to the GAAR legislation.
  • National Insurance Contributions (NICs) employment allowance draft regulations – a document inviting technical comments on the draft regulations implementing the reform, as announced at Budget 2018, of the NICs employment allowance to restrict it to businesses with an employer NICs bill below £100,000.
  • Child trust funds (CTF): consultation on maturing CTFs – draft regulations to ensure that CTF accounts can retain their tax-free status after maturity.
  • VAT simplification and the public sector - a policy paper exploring a potential reform to VAT refund rules for central government, with the aim of reducing administrative burdens and improving public sector productivity.
  • VAT partial exemption and capital goods scheme: simplification – a call for evidence on potential simplification and improvement of the VAT partial exemption regime and the capital goods scheme.
  • Consultation on the use of diesel by private pleasure craft - a consultation.
  • Review of time limits – a report comparing the time limits for the recovery of lost tax involving an offshore matter, with other time limits. The report will be laid by 30 March 2019.
  • Social investment tax relief (SITR) – a call for evidence on the use of the SITR scheme to date, including why it has been used less than anticipated and what impact it has had on access to finance for social enterprises.
  • Enterprise Investment Scheme (EIS) approved funds guidelines – draft guidelines for comment alongside draft legislation. The document will contain guidelines stating HMRC’s proposed policy and practice for approving funds. The legislation will include powers for HMRC to set appropriate conditions and approve funds.
  • CGT private residence relief – a consultation on the changes announced at Budget 2018 to lettings relief and the final period exemption.
  • Preventing abuse of the R&D tax relief for small - or medium-sized enterprises – a consultation on the measure announced at Budget 2018, as part of the package on tax avoidance. This consultation will focus on how the measure will be applied, to minimise any impact on genuine businesses.
  • Insurance premium tax operational review – a call for evidence on where improvements can be made to ensure that Insurance Premium Tax operates fairly and efficiently.
  • VAT administration in the Isle of Man - HM Treasury’s findings and recommendations to ensure the right VAT continues to be paid and collected in the Isle of Man. Following the Paradise Papers allegations, the Isle of Man Government invited HM Treasury to review its VAT administration processes for the importation of aircraft and yachts.