Spring Statement 2018: commentary


The Chancellor kept to his promise with his first Spring Statement and thankfully did not unveil any surprise tax changes. This may be the first step in beginning to restore confidence in the UK having a stable tax regime.

It was slightly disappointing that there was no follow up on some of the major consultation documents which were published in the autumn last year including the proposed changes to the taxation of property related gains made by non-residents. However, some further consultations were published today, covering a wide range of matters from how to tackle the plastic problem, to tax and the digital economy.

We comment below on the ones that are likely to be of most interest to our clients:

Entrepreneurs' relief ("ER")


Following an announcement made in the Autumn Budget 2017, the consultation sets out how the proposed changes may operate in practice. Broadly, ER can be denied in situations where a shareholder’s ownership falls below 5% due to “dilution” (usually by way of a new issue of shares to external investors). The consultation proposes to allow individuals, who immediately preceding the dilution qualified for ER, to elect to crystallise capital gains so that the shareholder is treated as selling their shares and immediately acquiring them at the then market value. Recognising that many individuals may not wish to suffer a “dry” tax charge at the time of crystallising the capital gain, a further election can be made so that the deferred gain will not come into charge until there is an actual disposal of the shares. ER may then be locked in and apply to this deferred capital gain. It is not proposed that these changes will be extended to qualifying trustees or privately owned assets which otherwise qualify for ER. 


Whilst this is a positive step forward and enables a shareholder to lock-in their ER to the point of dilution (rather than losing it altogether), the measures do not go far enough in our view and we would like to see ER extended to apply to all employee/director shareholders of UK private companies. 

Enterprise Investment Scheme ("EIS")

The Autumn Budget announced increased EIS relief for “knowledge intensive” companies, recognising the huge contribution these entities make to the UK economy, and their need for risk finance in the early years. 


The government released a consultation document today proposing a new EIS knowledge-intensive fund which would potentially offer increased income tax relief, dividend exemption and capital gains relief compared to “standard” EIS investments. The consultation is open for nine weeks and we therefore expect that this new fund structure may be introduced quickly. 


Ultimately, the proposals are welcome, and should enable these important but often high-risk companies greater access to risk finance than before. However, the devil will be in the detail of any legislation which is introduced and is likely to result in additional complexity in the rules and possible confusion to the investors and the target companies.   

Self-funded work related training

Many employees do not currently receive tax relief for self-funded training costs and the self-employed cannot typically claim tax relief for costs of training.  Where training needs to be self-funded, this means there is little incentive for an employee or self-employed individual to invest in developing new skills or retraining.  A new consultation has therefore been opened to consider how tax relief may become available in these circumstances to provide an incentive to encourage people to invest in themselves.     


This is a welcome proposal and one which we hope would help promote investment in new skills and training, which will benefit not only the individual worker but the wider UK economy.

Corporate tax and the digital economy

A policy paper was published following the Autumn Budget and this has now been updated to seek further comment from the industry. As explained in the original paper, the Government considers that multinational groups should be taxed in the countries where value is generated, and for some businesses this should include “user generated value”. The present international corporate tax framework makes no provision for “user generated value” and although ultimately the UK would hope to see an OECD and EU multilateral solution, the paper demonstrates that they are prepared to introduce UK tax laws to address this in the interim. Mr Hammond will be sharing the potential solutions with his counterparts at the next G20 summit.

There were no further announcements on the consultation which was published in December regarding withholding tax on royalties and other types of payments made to connected persons. As the new rules are expected to be introduced from 1 April 2019, some further substance regarding these proposals would be welcome and we expect draft legislation later in the year.   

Security deposits regime

HMRC recognise that most businesses pay the correct amount of tax. Those who do not pay tax or unfairly reduce their tax bill are in the minority. In high risk cases, HMRC has the power to require that businesses provide an upfront security deposit. These powers can currently only be invoked in respect of certain taxes and duties. 

As HMRC arms itself with more tools to tackle persistent defaulters, they intend to extend the existing security deposit regime to corporation tax and the construction industry scheme. The consultation is open until 8 June 2018.

The role of online platforms

The Government recognises the increasing use of online platforms and market places and acknowledges that they are good for the economy. HMRC appreciate that whilst most people want to ensure they are compliant and pay the right amount of tax, many who earn money in this way may not appreciate the tax obligations which accompany the use of such platforms and may be in default through lack of knowledge. 

This consultation document is a call for evidence to help the government understand more about the relationship between platforms and their users and the steps some platforms are already taking to help their users understand and meet their tax obligations. The consultation is open until 8 June 2018.

It is helpful that the government are looking to understand the relationships between the platforms and users and see how they can assist businesses to stay compliant. However, we have some concerns that this may lead to further tax legislation or require the platform to act as an “intermediary tax collector” (similar to how the current non-resident landlord arrangement works), unless the platform users provide some sort of certificate of compliance from HMRC. Should this be the case, it could significantly increase the compliance costs for small traders, so we hope the government will ultimately take a pragmatic view on this. 

VAT: tackling fraud on goods sold online - update on split payment

Following the feedback received in the previous call for evidence on alternative methods of VAT collection, the government have continued to develop their thinking on how a split-payment VAT mechanism could work in practice. As announced at the Spring Budget 2017, this would potentially allow VAT to be transferred directly to HMRC at the point of sale without any involvement required from the online seller.

The proposals are likely to be welcomed by many, as they may offer a simplification to these businesses, and provided any changes are implemented well, should go a long way to tackling online VAT fraud.     

For more information, please contact either Caroline Le Jeune or Genevieve Moore.