Spring Statement 2018: 5 things to look out for

Spring Statement 2018: 5 things to look out for

Experts discuss economic forecasts, taxing the digital economy, remuneration structures and more

Spring Statement 2018: 5 things to look out for

Chancellor Philip Hammond is due to deliver the first Spring Statement since the amendment of the government’s fiscal event timelines, and a Treasury spokesperson said the event will have “no red box, no official document, no spending increases, no tax changes”. So what can we expect?

Updated economic forecasts

Lacking any major tax or spending changes, the statement will be a pared-down event, primarily containing Office of Budget Responsibility (OBR) forecast updates surrounding growth, public finances and productivity.

Ian Stewart, chief economist at Deloitte, said that a slightly brighter economic outlook since November has meant that global growth has been stronger than expected and government borrowing has fallen more quickly than forecast.

On growth Stewart said: “The OBR’s current forecasts for growth, at 1.4% in 2018 and 1.3% in 2019 are marginally more pessimistic than the average private sector forecaster.”

Stewart said it is likely the Treasury will stick to a cautious view, but there is a possibility they’ll raise both years to 1.5%.

Hammond described finally seeing a “light at the end of the tunnel” with debt starting to fall after 17 years of growth on the BBC’s Andrew Marr show.

John Hawksworth, chief economist at PwC, said that on public borrowing, “the latest figures suggest a significant undershoot in 2017/18 with borrowing likely to come in at just over £40bn compared to the OBR’s November forecast of £49.9bn.”

Hawksworth added that a large part of this undershoot is likely to carry through to later years, but “there could be some offset from higher debt servicing costs, as market expectations of future interest rates have increased somewhat since November.”

Stewart commented: “The good news is that the improving trend in public borrowing will enable the OBR to pencil in substantially lower numbers for public sector borrowing in the next two years.”

He added that the Spring Statement seems likely to show that most of the hard work of deficit reduction has been achieved.

In terms of productivity, Stewart noted to an uptick since November, but said this was unlikely to impact long-term forecasts.

Tax vision for post-Brexit Britain

As the statement will be shorn of any major tax changes, experts suggest this is a good opportunity for the Treasury to flesh out medium and long-term tax strategies, particularly for post-Brexit Britain.

For businesses, Eric Williams, head of tax at Mazars, said that a “review of supply chains and the structure of cross border operations and on financing arrangements may be high up on the agenda from a tax perspective.”

Emphasising the need to attract and retain talent in Britain, Dinesh Jangra, partner and head of global mobility services, Crowe Clark Whitehill, said he would like to see a review of the UK tax system in the area of mobility (expatriate tax breaks) to enhance UK attractiveness.

He said: “The tax effectiveness of non-domicile status has been eroded over time and while we have overseas workday relief and temporary workplace relief, I question if they are enough to continue to attract the best talent to the UK.”

He added: “Often, employers take on the UK income taxes due in respect of employees under tax equalisation arrangements so more UK tax breaks can reduce overall employer tax costs.”

Taxing the digital economy

In recent months the UK, along with the rest of the world, has ruminated on the best ways to tax digital businesses. The Chancellor made some announcements surrounding taxing the digital economy in the Autumn Budget, following which two consultations were launched.

Williams explained that one consultation looked at the UK’s general approach and the other proposed “a royalty withholding tax on non-resident businesses making payments to certain offshore jurisdictions in respect of intellectual property rights exploited in the UK in circumstances where there is otherwise no UK taxable presence.”

Furthermore, “recent reports indicate the UK may also be considering a revenue or sales tax for digital businesses”, said Williams.

The European Commission and OECD are also currently examining taxing digital businesses and are due to comment on potential changes in coming weeks. Williams explained “this is an area of taxation that, ideally, needs international consensus if double taxation is to be avoided.”

Although some comment on this is to be expected in the spring statement, it is likely that major decisions will be postponed and co-ordinated at a more global level.

 Remuneration structures: IR35 and EBTs

The tax treatment of off-payroll workers has been an area of significant focus in recent months, according to Julian Sansum, employment partner at PwC.

He said: “At last Autumn’s Budget Statement, the government announced it would consult on how to tackle non-compliance in the private sector with the existing IR35 rules – which address the taxation of workers providing their services through intermediaries.”

The recent case between HMRC and ex-BBC presenter Christa Akcroyd highlighted issues with the legislation as well as the government’s renewed focus on its violation.

Sansum said that the consultation is likely to extend the recent IR35 public sector reforms to the private sector.

He said that the full proposals are likely to be published alongside the spring statement with implementation expected in April 2020, or possibly as early as 2019 if the Chancellor deems sufficient progress with public sector changes has been made.

Another high-profile case surrounding remuneration was the Rangers FC case, which surrounded Employee Benefit Trusts (EBT) and ultimately led to a Supreme Court ruling in favour of HMRC.

Caroline Harwood, partner and head of share plans and reward, Crowe Clark Whitehill, said: “During 2017 we saw the introduction of yet more measures to tackle remuneration structures designed to avoid tax, including a charge on all outstanding ‘disguised remuneration loans’ made to employees by Employee Benefit Trusts (EBT) or other third parties, as well as the new ‘close company gateway’.”

Referring to the Supreme Court ruling, Harwood said this “brought the ‘redirection principle’ into the foreground, in ruling that payments via EBTs qualified as taxable income.”

Harwood called for further clarity on this in the spring statement, as she said the interaction between “this new case law, the disguised remuneration rules and arranging such salary sacrifice into a pension scheme” is unclear.

Consultations on property tax

A consultation on bringing non-UK resident owners of UK immovable property within the scope of UK corporation tax announced an anti-forestalling rule, “which concerns the use of ‘treaty shopping’ to avoid exposure to the imposition of capital gains tax to this sector from April 2019.”

Williams commented that while the anti-forestalling rule came into force at the time of the Autumn Budget, there is currently no draft legislation for the measure, and this would be welcomed in the spring statement.

Another upcoming consultation is on the planned application of corporation tax to non-resident corporate landlords, due in summer 2018, and change scheduled for April 2020. Williams said: “The staged introduction of corporate non-resident landlords to full UK tax on their UK property activities does not give the appearance of co-ordination on property policy initiatives.”

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