Greg Jones of KPMG considers the UK 2018 Budget from an Isle of Man perspective
Christmas seems to get earlier every year, and with workmen across the land already putting up seasonal fairy lights, Philip Hammond’s 2018 UK Budget certainly had a festive feel to it.
The Chancellor’s giveaway mood was matched only by his questionable line in dad jokes (ok, so I wish I had thought of most of them!) but in among all the humour (“little detail on the public toilets business rate relief… as yet local Councillors have nothing to go on”) there were some serious messages for the Isle of Man.
From April 2019, UK personal allowances (the amount you can earn without paying tax) will increase to £12,500 and the 20% tax bracket will increase by 7.87% to £50k, thereby fulfilling the Government’s election pledge a year early. For those in this income bracket, i.e. the majority of earners, the tax burden for UK taxpayers is now only marginally higher than that of their Manx counterparts.
Remote Gaming Duty, introduced in 2014 in the UK, will immediately be hiked from 15% to 21%. This will affect all non-UK Gaming operators with UK customers, and will therefore represent a significant increase in the cost of doing business in the UK market. Whilst the Isle of Man’s flourishing e-Gaming sector is largely non-EU centric, there is inevitably some UK business and this latest development is therefore a disappointment.
One of the Chancellor’s more interesting proposals was the introduction of a Digital Services Tax (DST) from 2020, at 2% on UK-derived revenues of search engines, social media platforms and online market places. The DST is not intended to apply to online sales of goods per se. It will only apply to businesses with a global annual turnover of at least £500m, with £25m of UK revenues.
To put this in perspective, Facebook’s global revenues for 2017 were US$40 billion, Google’s for 2015 US$67 billion and Amazon’s in 2017 a whopping US$178 billion! The proposed introduction of DST is a reflection of the UK Government’s frustration with the pace of change within the wider international tax community (and not the first time the UK has shown it is not afraid to “go it alone”: remember the introduction of Diverted Profits Tax in 2015?). Details of this proposal are yet to be agreed: the Government will issue a consultation document shortly.
Whilst I am not wholly convinced of the intellectual argument that an overseas business should pay tax in the UK simply because it has customers there (tax traditionalists have always drawn a distinction between doing business in a jurisdiction and doing business with it), I have nonetheless long felt that the corporate tax system needs to be completely overhauled and the present system of taxing profits replaced by a “point of consumption tax” (a variant on VAT if you like).
I also suspect that the overwhelming majority of folk are of the view that the digital giants have been taking the proverbial Michael and should now be made to contribute tax in a big way. As such, this proposal will no doubt have popular support.
Many digital businesses are based in “offshore” locations, the Isle of Man being no exception. A 2% levy on UK sales may not yet make their operating model uneconomic but one suspects that, rather like air passenger duty and Insurance Premium Tax, the DST will gradually increase over time and at some stage cause digital businesses to rethink their tax strategy.
Overall though, this Budget could have been a lot worse. Unlike the Chancellor’s jokes ..........