The Chancellor opened the ‘last’ Spring Budget statement by recalling it was not the first time it had been labelled thus, and that the precedent was not hopeful – as if he anticipated the calls for his own departure which would follow what was surely intended as a low-key fiscal event.
Again the narrative centred on preparing the economy for the travails ahead, though the ‘B-word’ was scarcely mentioned by the former Remainer. The news cycle in the period since the Budget has been dominated by the intentions of countries leaving the membership of trading blocs, whether national or international, and the uncertainty which surrounds the most fundamental issues for the next few years.
Dogs not barking
The Budget was more notable for what did not happen than what did: no further IPT rate increase – for now (perhaps the result of the Discount Rate changes announced, or the fact that the last IPT increase announced had not yet occurred). The ABI and other industry groups have agreed guidelines with HMRC on how the transition from 10% to the 12% rate may be handled – the ABI guidance can be found here.
Instead, the headlines lay elsewhere: while the Chancellor praised entrepreneurs, it seemed he had come to bury them. And again, the news value lay in what (ultimately) did not happen.
Simplification fit for purpose
At the 2016 Autumn Statement the Chancellor announced he had asked the Office of Tax Simplification (OTS) to conduct a review of the UK VAT system to see whether the system is working properly and to identify simplification opportunities. At the end of February the OTS published an interim report and announced a call for further evidence. Areas for investigation included the registration threshold (higher still? lower?), multiple rates, partial exemption, special accounting schemes, penalties and appeals, rulings and the interaction with Making Tax Digital.
Anyone familiar with the UK VAT regime will be aware that it is rife with complexity and ripe for reform, but while there may be more scope for future change after leaving the EU, the political acceptability test of any change will remain as great a constraint as anything in the Principal VAT Directive.
Caring about Sharing
When in 2012 the UK finally implemented the mandatory EU VAT exemption for independent groups of persons sharing costs while carrying on an exempt activity – the ‘Cost Sharing Exemption’ - the drafting of the UK’s implementation made clear this was an exemption not to be used lightly, if indeed at all. Multiple tests must be met – recent ABI discussions with other industries suggest such deterrence has proved effective.
The CJEU cases of DNB Banka (C-326/15) and Aviva (C-605/15) therefore promised to shed further light, in particular the extent to which the exemption could be used by taxpayers in financial services, and in a cross-border context. The Advocate-General’s Opinion (AGO) in the former had originally been expected in early October.
Alas, it would appear the answers are respectively very little, and not at all, according to the Opinions of AG Kokott released on 1 March. This is a significant setback for advocates of making the UK’s implementation more business-friendly: while the judgment of the Court occasionally differs from the findings of the Advocate-General, AG Kokott is one of the most respected.
The best of times, the worst of times
And so we end the first quarter of a tumultuous year with hopes of the best (reform and clarity) and fears for the worst (constraints both economic and political), with uncertainty the only form of certainty on offer.