Legislation day – an ‘L’ of a day?
Amidst all the furore of Brexit discussions, one might have been forgiven for being sceptical that the government would maintain a strict approach to tax policy making. Indeed, the chancellor in his Budget last year warned that the Spring Statement might need to revert to a Spring Budget, if Brexit intervened. But, in the event, spring did indeed bring a Statement, rather than a Budget.
L is for… leadership?
Looking at legislation day (or ‘L-day’ as it’s known within Treasury), a similar scepticism could be expected, with the Treasury’s first lord (the prime minister) already having resigned and the Treasury’s second lord (the chancellor) having a very different stance on the fiscal position than either of the candidates running for the vacant position of prime minister.
But nevertheless, we have indeed had L-day, only the second one since the change in Budget dates meant that its documents were delivered as Summer reading rather than Christmas goodies.
So, what did we see on this auspicious day?
L is for… lengthy?
Much has been said about the length of the UK’s legislation and L-day is the day we get the first instalment of the next increment. Of course, length is not just about the legislation, but also about the volume of information that is published. L-day brought 21 items of draft legislation to work through this time, but some had far more than just the legislation. For example, the digital services tax (DST) draft legislation, at a potentially manageable 37 pages, was accompanied by an impact note, draft guidance, explanatory notes and a consultation response, all together totalling an expansive 189 pages.
And that is one of 21 proposals. So, yes, for now, L continues to stand for lengthy.
L is for… legacy?
Given that this was potentially the last chance for the chancellor to set out his stall on taxation, there must have been a temptation to use this as the opportunity to set out his legacy in the area of tax policy. There was more than enough excuse to provide some government statements in relation to the policy documents on key matters, such as the taxation of the self-employed.
Indeed, we did see the publication of the off-payroll workers rules, moving the administration of the much maligned ‘IR35’ system away from the personal services company and onto the organisations that hire the contractors, as has been tested in the public sector.
Building on the responses to consultation, the draft legislation sets out what types of employers are categorised as small and therefore outside the scope of the regime, as well as including provisions to ensure that all parties in the labour supply chain are aware of the organisation’s decision and the reasons for that decision. It also provides for a statutory, client-led status disagreement process to allow individuals and fee payers to challenge the organisation’s determinations.
This is a significant change for employers, agencies and individuals classed as self-employed, and is estimated to impact 170,000 individuals, 20,000 agencies and 60,000 organisations. Whoever is chancellor under the new prime minister will inherit this legacy, knowing that this is going to be an issue that will require further attention as it moves towards Budget and through Parliament. Few people actively dislike the stated policy intention (i.e. tackling disguised employment) but the shifting of administration away from HMRC and onto employers is controversial. What is seen by some as a tax rise for the self-employed sector may yet be problematic to deliver.
L is for… lion hearted?
In a week in which the US administration initiated an investigation into France’s DST, the chancellor carried on regardless, providing more details of the UK’s own version of a DST. Of course, the UK’s DST, at 2% rather than 3% and on a different base (i.e. without data sales), differs from that of France, but the many similarities must give rise to concerns that the US could undertake a similar action if (or when) the UK actually legislates for DST.
The main provisions remain as consulted upon, being a 2% tax on revenues earned from the provision of social media platforms, search engines or an online marketplace to UK users. The thresholds, limits and allowances (e.g. relevant worldwide revenues of £500m and over, UK relevant revenues of £25m and over, and an allowance of £25m) remain as per the consultation.
There have been some refinements, as befits consultation. These include online marketplace transactions, where recognition has been given to the possibility that the counterparty of the transaction could be in another country with a DST. In this case, the UK will not seek to tax the whole of the revenue on that transaction.
The government has not updated the revenue estimates for the new tax, arguing that this requires review by the Office for Budget Responsibility. This is a shame, as this could have provided some fresh insight into the size of the activity that the government expects to be covered by the tax.
With so much politics in play around these new taxes, the chancellor’s ‘straight bat’ approach to delivering the legislation may have been the only option. But this remains a brave (or ‘lion hearted’) move for the chancellor to make in the face of growing US opposition. The UK has indicated that it would much prefer a longer-term solution; however, in terms of the changes in the allocation of taxing rights being discussed by the OECD and the 131 members of the Inclusive Framework on Base Erosion and Profit Shifting (the ‘IF’), this is not expected to deliver in time to fit this chancellor’s timetable.
Of course, a successor could take a different stance, and a credible, legislation-ready DST could be a useful tool for the bargaining table.
L is for… limited?
The day was also notable for what was not included. L-day provided an opportunity to clear the decks of a number of policy matters, but the chancellor stuck to the policy approach and avoided the temptation of providing an update on items that did not involve legislation in the next finance bill.
So those looking for a government update on the potential for a new plastic packaging tax, the consultation on which closed on 12 May, were disappointed and may now have to wait until the Budget. Given that the tax is not due to be in place until April 2022, there is plenty of time for parliamentary counsel to get to work.
L is for… liaise?
At the end of the day, the purpose of L-day was to provide the draft legislation for consultation. And the chancellor has done that, with as few added bells and whistles as possible. This might have been triggered by the fact that HM Treasury and HMRC are busy on the issues of Brexit, but it is welcome nonetheless. The period for consultation (or liaison) now runs to 5 September, so those looking for some holiday reading need go no further than the gov.uk website.
Consultation will be important if these issues are to be delivered effectively in legislation. With so much consultation over the last few years, the risk of consultation fatigue is high. But engagement now should help to minimise unintended outcomes and mean that the legislation is better formed by the time it is introduced to Parliament in the autumn.
L is for… likely?
So finally, how likely are we to see these draft clauses pass into law? Well, as seen above, there’s a lot here that is controversial and subject to significant political risk. That requires a chancellor who is committed to the policy changes and to driving these policies forward. Whoever becomes the new chancellor will have the opportunity to re-assess the Treasury’s position on these areas and, given the discussions about the loosening of the fiscal constraints, may not wish to take on all these challenges at the same time.
However, the underlying need to raise revenues remains the same and the temptation to implement this legislation, whilst blaming their predecessor, may be too much for the next inhabitant of 11 Downing Street to resist.
After all, L is for … legislation.
The views expressed here are those of the author and do not necessarily represent any of the above organisations.
Legislation day – an ‘L’ of a day?
Amidst all the furore of Brexit discussions, one might have been forgiven for being sceptical that the government would maintain a strict approach to tax policy making. Indeed, the chancellor in his Budget last year warned that the Spring Statement might need to revert to a Spring Budget, if Brexit intervened. But, in the event, spring did indeed bring a Statement, rather than a Budget.
L is for… leadership?
Looking at legislation day (or ‘L-day’ as it’s known within Treasury), a similar scepticism could be expected, with the Treasury’s first lord (the prime minister) already having resigned and the Treasury’s second lord (the chancellor) having a very different stance on the fiscal position than either of the candidates running for the vacant position of prime minister.
But nevertheless, we have indeed had L-day, only the second one since the change in Budget dates meant that its documents were delivered as Summer reading rather than Christmas goodies.
So, what did we see on this auspicious day?
L is for… lengthy?
Much has been said about the length of the UK’s legislation and L-day is the day we get the first instalment of the next increment. Of course, length is not just about the legislation, but also about the volume of information that is published. L-day brought 21 items of draft legislation to work through this time, but some had far more than just the legislation. For example, the digital services tax (DST) draft legislation, at a potentially manageable 37 pages, was accompanied by an impact note, draft guidance, explanatory notes and a consultation response, all together totalling an expansive 189 pages.
And that is one of 21 proposals. So, yes, for now, L continues to stand for lengthy.
L is for… legacy?
Given that this was potentially the last chance for the chancellor to set out his stall on taxation, there must have been a temptation to use this as the opportunity to set out his legacy in the area of tax policy. There was more than enough excuse to provide some government statements in relation to the policy documents on key matters, such as the taxation of the self-employed.
Indeed, we did see the publication of the off-payroll workers rules, moving the administration of the much maligned ‘IR35’ system away from the personal services company and onto the organisations that hire the contractors, as has been tested in the public sector.
Building on the responses to consultation, the draft legislation sets out what types of employers are categorised as small and therefore outside the scope of the regime, as well as including provisions to ensure that all parties in the labour supply chain are aware of the organisation’s decision and the reasons for that decision. It also provides for a statutory, client-led status disagreement process to allow individuals and fee payers to challenge the organisation’s determinations.
This is a significant change for employers, agencies and individuals classed as self-employed, and is estimated to impact 170,000 individuals, 20,000 agencies and 60,000 organisations. Whoever is chancellor under the new prime minister will inherit this legacy, knowing that this is going to be an issue that will require further attention as it moves towards Budget and through Parliament. Few people actively dislike the stated policy intention (i.e. tackling disguised employment) but the shifting of administration away from HMRC and onto employers is controversial. What is seen by some as a tax rise for the self-employed sector may yet be problematic to deliver.
L is for… lion hearted?
In a week in which the US administration initiated an investigation into France’s DST, the chancellor carried on regardless, providing more details of the UK’s own version of a DST. Of course, the UK’s DST, at 2% rather than 3% and on a different base (i.e. without data sales), differs from that of France, but the many similarities must give rise to concerns that the US could undertake a similar action if (or when) the UK actually legislates for DST.
The main provisions remain as consulted upon, being a 2% tax on revenues earned from the provision of social media platforms, search engines or an online marketplace to UK users. The thresholds, limits and allowances (e.g. relevant worldwide revenues of £500m and over, UK relevant revenues of £25m and over, and an allowance of £25m) remain as per the consultation.
There have been some refinements, as befits consultation. These include online marketplace transactions, where recognition has been given to the possibility that the counterparty of the transaction could be in another country with a DST. In this case, the UK will not seek to tax the whole of the revenue on that transaction.
The government has not updated the revenue estimates for the new tax, arguing that this requires review by the Office for Budget Responsibility. This is a shame, as this could have provided some fresh insight into the size of the activity that the government expects to be covered by the tax.
With so much politics in play around these new taxes, the chancellor’s ‘straight bat’ approach to delivering the legislation may have been the only option. But this remains a brave (or ‘lion hearted’) move for the chancellor to make in the face of growing US opposition. The UK has indicated that it would much prefer a longer-term solution; however, in terms of the changes in the allocation of taxing rights being discussed by the OECD and the 131 members of the Inclusive Framework on Base Erosion and Profit Shifting (the ‘IF’), this is not expected to deliver in time to fit this chancellor’s timetable.
Of course, a successor could take a different stance, and a credible, legislation-ready DST could be a useful tool for the bargaining table.
L is for… limited?
The day was also notable for what was not included. L-day provided an opportunity to clear the decks of a number of policy matters, but the chancellor stuck to the policy approach and avoided the temptation of providing an update on items that did not involve legislation in the next finance bill.
So those looking for a government update on the potential for a new plastic packaging tax, the consultation on which closed on 12 May, were disappointed and may now have to wait until the Budget. Given that the tax is not due to be in place until April 2022, there is plenty of time for parliamentary counsel to get to work.
L is for… liaise?
At the end of the day, the purpose of L-day was to provide the draft legislation for consultation. And the chancellor has done that, with as few added bells and whistles as possible. This might have been triggered by the fact that HM Treasury and HMRC are busy on the issues of Brexit, but it is welcome nonetheless. The period for consultation (or liaison) now runs to 5 September, so those looking for some holiday reading need go no further than the gov.uk website.
Consultation will be important if these issues are to be delivered effectively in legislation. With so much consultation over the last few years, the risk of consultation fatigue is high. But engagement now should help to minimise unintended outcomes and mean that the legislation is better formed by the time it is introduced to Parliament in the autumn.
L is for… likely?
So finally, how likely are we to see these draft clauses pass into law? Well, as seen above, there’s a lot here that is controversial and subject to significant political risk. That requires a chancellor who is committed to the policy changes and to driving these policies forward. Whoever becomes the new chancellor will have the opportunity to re-assess the Treasury’s position on these areas and, given the discussions about the loosening of the fiscal constraints, may not wish to take on all these challenges at the same time.
However, the underlying need to raise revenues remains the same and the temptation to implement this legislation, whilst blaming their predecessor, may be too much for the next inhabitant of 11 Downing Street to resist.
After all, L is for … legislation.
The views expressed here are those of the author and do not necessarily represent any of the above organisations.
