In a Budget speech which repeatedly emphasised its business friendly credentials there were surprisingly few announcements directly targeting large multinationals – for these businesses the focus will be less on what the Chancellor did announce rather than what he did not.

Seeking to demonstrate the Government’s readiness to tackle the economic threat of Covid-19 the Chancellor announced a raft of measures carefully targeted to support smaller businesses, but there was no direct help on offer for large business which instead will be reliant on any indirect impact from measures aimed at boosting the economy more generally.  Indeed by not extending the support offered to small businesses in meeting the costs of an expanded statutory sick pay regime, the Government is effectively looking to multinationals to share the pain of meeting the cost of the virus.

The confirmation that the Government intends to stick with its pre-election plan to keep the corporation tax rate at 19 percent (scrapping a proposed cut to 17 percent) was unsurprising but may be viewed with slightly less equanimity in the current economic climate than it was when originally announced.

Similarly expected, but diplomatically passed over in the speech and instead relegated to the supporting documents, was the confirmation that the UK will press ahead with its digital services tax from 1 April 2020 in substantially the same form as previously announced.  An equally quiet confirmation was given of the Government’s decision to press ahead with reforms of the operation of the off-payroll working (IR35) regime in the private sector from April 2020.

It is also to the supporting documents that businesses will have needed to turn to learn of a change that, although only projected to raise relatively small amounts, may have significant consequences for how they approach tax compliance.  A challenge for any tax authority is how to identify which taxpayer positions to challenge, with the UK relying primarily on its penalty regime and discovery powers to discourage taxpayers from taking aggressive undisclosed positions.  The Budget announced a new approach under which large businesses will, from April 2021, be required to notify HMRC when relying on an uncertain legal interpretation which HMRC is likely to challenge.

Few details have been provided beyond that the policy will draw on international accounting standards and the Government is to consult on the detail of the notification process.  For the many businesses which already maintain a transparent relationship with the tax authorities it is arguable that there should be little overall impact from this change, with the primary target presumably being those businesses which do seek to avoid scrutiny by the tax authority.  Nonetheless concerns at the consequences of reaching the wrong conclusion, whether that is a penalty for a failure to notify or the expense of a needless HMRC enquiry, will mean that all businesses are likely to want to review their tax governance in light of the detailed proposals when they do appear.

That HMRC might be expected to act on any notification can be expected from one of the more significant revenue raising measures, described in the speech as a clampdown on “aggressive tax avoidance”, the centrepiece of which is funding for an additional 1,300 HMRC staff to improve their compliance work and debt collecting ability.  With a significant return expected from this investment and no clear specific targets there will be real pressure on HMRC to ensure that all appropriate challenges are being made.

The Budget small print does contain some potential good news for multinationals though.  The UK’s far reaching anti-hybrid regime has been a notorious source of complexity (not to mention some uncertain tax positions) with its mechanical rules in some cases delivering results which are out of line with the real economic effect of common business models adopted by multinational business.  The news of a consultation – and particularly the hint that this may address some of the regime’s glitches – will therefore be welcomed by many.

Investment in R&D was a key theme of the Chancellor’s speech and he delivered on the manifesto pledge to increase the Research and Development Expenditure Credit to 13 percent.  The announcement of a consultation on whether expenditure on data and cloud computing should qualify for R&D tax credits will come as positive news for the life sciences sector in particular.  As expected, the structures and buildings allowance rate was increased from 2 percent to 3 percent.  There was also some unexpected news that changes to the intangible fixed assets regime are to be made in Finance Bill 2020 which may encourage on-shoring of intellectual property by allowing relief to be claimed for pre-FA 2002 intangible fixed assets acquired from overseas group companies.

Perhaps the most welcome news for multinationals, however, was again something the Chancellor did not say: in this case the lack of any major sweeping tax reforms or significant new regimes.  Major new initiatives – for example, those prompted by the OECD BEPS project – have been a theme of recent Budgets.  With no shortage of other challenges to face, a degree of stability in the tax environment may be unexciting but certainly not disappointing.

How long-lived this stability will be remains to be seen.  With the Chancellor’s actions on environmental measures in the Budget arguably more muted than his rhetoric, there is likely to be pressure for more dramatic actions with a bigger impact on business.  More generally Brexit trade negotiations, international economic uncertainty and the anticipated publication of a White Paper on the Government’s proposals to address carbon emission targets could all act as drivers for more significant changes – multinational business should therefore perhaps enjoy the moment of quiet while it lasts.

Budget 2020: Digital services tax

Reaffirming its commitment to repeal the tax if a global solution is reached.