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Indirect Tax – Reflections on the Autumn Statement

David JordorsonNot since the Autumn Statement replaced the Pre-Budget Report in 2010 has the UK’s second fiscal event taken place against a backdrop of greater uncertainty. With the twin unknowns of a Trump Presidency and the (shifting) shape of Brexit looming over all, it was an opportunity for the new Chancellor to set out his stall and the themes of the current administration. While leaving the EU will dominate the next few years, here was a key chance to hit ‘reset’ after the Summer’s upheaval.

It was predicted the Chancellor would look to set out high-level principles and leave detail to the Spring Budget. From an indirect tax perspective, many significant issues for insurers – VAT grouping, cost sharing, exemption for defined contribution pension fund and property fund management – had been agreed or deferred to a specific time. The last most recent IPT rate rise had just been implemented.

The Autumn Statement, the last under the incumbent, was dominated by the probability of worsening economic conditions, and the Chancellor’s anticipation of them. Unfortunately, in need of more tax revenue, he could not resist a further increase in the IPT standard rate to 12% – the third announced in 18 months, representing a doubling of the tax rate in that time, so taking the UK’S standard IPT rate to the sixth highest in Europe. It appears that the Treasury still considers this a low-profile tax, unlikely to generate the same level of outrage as say, fuel duty.

So far this may not be a mistaken view, and his options may be limited by the 2015 Tax Lock (presumably still in effect), but another rise so soon looks opportunistic. IPT at 12% is now a stiff penalty on those looking to protect their property, pay for medical treatment through health insurance, manage everyday risks to get on with their lives or to insure their car as required by law. It will add to the costs of small businesses: IPT may be corporation tax deductible, but it is not recoverable as VAT is for many businesses.

On the plus side, the new arrangements to deal with future rate rises, proposed by the insurance industry, led by the ABI, have been agreed with HMRC and HMT Treasury. This includes a longer notice period, and draft legislation for their introduction will be published shortly for comment. They should make administering IPT, particularly around the time of a rate rise, easier and clearer for the market.

In addition, HMRC has recently confirmed that it does not propose to amend UK VAT legislation to take account of the Aspiro CJEU judgment, which is welcome news and reflects the efforts of the ABI and others.

Winter is coming

Looking ahead, HMRC will launch its VAT grouping consultation early next month, and publish draft Finance Bill legislation around the same time. The decision in Wheels Private Hire is expected before Christmas. On a larger scale, we can expect more detail on the preparations for the unfortunately-timed ‘Making Tax Digital’ (MTD) project, the first phases of which will begin all too soon.

HMRC will be getting to grips with other issues, as if Brexit and MTD were not enough, including a wholesale restructuring, which will see many centres close and some staff moved to Croydon / Stratford / Scotland. We must hope the government appreciates that a suitably-resourced and motivated HMRC and Treasury will be an essential asset in the coming years of difficulty.

Equally, we must hope that the government understands that the business community has reasonable expectations and requirements of what emerges from the changes in prospect. Otherwise, there will be very little jam, or cake, to go around.

Last updated 30/11/2016