INSIGHT: U.K. Spring Statement—a Brief Respite from Brexit News?

Squeezed into the middle of three days of debates and votes on Brexit, the U.K. Chancellor, Philip Hammond, delivered his Spring Statement on March 13, 2019. Anyone hoping for respite from arguments over Brexit will have been disappointed.

“A Cloud of Uncertainty”

The Chancellor began by referring to the “cloud of uncertainty” hanging over the U.K. economy as a result of the current parliamentary deadlock over Brexit.

Throughout the speech Mr Hammond urged MPs to compromise and reach a consensus on leaving the EU with some sort of deal (though interestingly he did not mention the particular deal which the government has twice failed to get MPs to endorse).

The carrot for MPs is the “deal dividend”: the idea that a huge amount of investment is stored up waiting to be released once “no deal” is ruled out and the picture on Brexit becomes clearer.

In addition, Hammond has said the government can begin to bring the period of austerity to an end, in light of improved public finances—but again, only if the U.K. leaves the EU with a deal.

No New Taxes

Perhaps unsurprisingly, given the Brexit context, there was very little in the speech or accompanying documents in relation to major tax and spend decisions.

This is also consistent with the Chancellor’s stated aim of having just one major fiscal event per year (the Budget, now held each autumn) rather than two.

The Digital Economy

On the digital economy, U.K. policy is starting to move quickly.

The Chancellor announced that he has asked the Competition and Markets Authority to undertake a market study of the digital advertising market as soon as possible. This may be a precursor to further regulatory or anti-trust activity in the U.K. directed at the large tech businesses, especially given the findings of the review conducted by Professor Jason Furman (published at the Spring Statement).

The U.K. has already consulted on the design and implementation of its proposed digital services tax, which has some parallels with the ideas for a digital services tax promoted at Organization for Economic Co-operation and Development and EU level. The responses to that consultation are to be published with other Spring Statement documents. The response document will merit careful review for any businesses that are potentially within the scope of the new tax.

Ignorance is no Defense—the Corporate Criminal Offense

The documents published by HM Revenue & Customs (“HMRC”) alongside the Spring Statement include research carried out by the U.K. market research company Ipsos MORI, evaluating behavioral changes among corporates in response to the criminal offense (introduced in 2017) for companies that fail to prevent the facilitation of tax evasion by their employees or agents.

The report shows a surprising level of ignorance over the 2017 measures: only 25 percent of those interviewed had heard of the legislation and only 12 percent said they knew what this meant for their business.

This should act as a wake-up call for business. A corporate is guilty of a criminal offense (on a strict liability basis) if an employee or agent facilitates tax evasion in circumstances where the corporate has failed to put in place reasonable prevention measures.

Planning Points

The Brexit context means this is largely a “wait and see” fiscal statement.

However, for digital businesses, there are important developments here which those in the tech industry will want to monitor closely. Further consultation may be possible before any new regulatory or tax measures come into effect.

For the business community as a whole, the worrying findings of HMRC’s research into the corporation criminal offense—i.e. the knowledge gap in this area—is something that urgently needs to be addressed. Groups should review their policies and procedures in relation to the prevention of tax evasion and should consider what steps they need to take to raise awareness of this important source of risk.

Gregory Price is a senior solicitor in the tax group at Macfarlanes. He advises on the full range of corporate tax issues, with a particular focus on group tax planning and corporate tax advice for substantial privately owned businesses.

The author may be contacted at: gregory.price@macfarlanes.com

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