6 December 2024
National Insurance Bill – Second Reading
The National Insurance Contributions (Secondary Class 1 Contributions) Bill 2024-25 had its Second Reading debate in the House of Commons on 3 December 2024. MPs agreed to give the Bill its Second Reading by a vote of 332 to 189. The Bill will implement, with effect from 6 April 2025, several National Insurance Contributions (NICs) announcements made in the Autumn Budget including: the decrease in the employer secondary Class 1 NICs threshold from £9,100 to £5,000 per year; the increase in the employer secondary Class 1 NICs rate from 13.8% to 15%; the increase in the maximum Employment Allowance from £5,000 to £10,500; and the removal of a £100,000 eligibility threshold that currently applies to the Employment Allowance.
The government has scheduled the Bill’s remaining Commons stages (Committee of the Whole House, Report stage and Third Reading) for 17 December 2024. The Bill’s Second Reading in the House of Lords has been provisionally scheduled for 6 January 2025.
Scottish Budget presented
On 4 December 2024, the Scottish government presented its proposed Budget for the 2025-26 tax year. On the devolved elements of Scottish income tax applicable to the non-savings, non-dividend income of Scottish-resident taxpayers, the same six rates of income tax as applicable in 2024-25 are proposed for 2025-26. The government proposes increases to the 19% Starter rate band and the Basic rate band, to increase the effective income thresholds for paying both the Basic (20%) and Intermediate (21%) rates of tax by 3.5% each, to £15,397 and £27,491 respectively. The government proposes maintaining the current thresholds for paying the Higher (42%), Advanced (45%) and Top (48%) rates, at £43,662, £75,000, and £125,140 respectively. A government factsheet on the 2025-26 income tax proposals is available here.
No changes are proposed to standard residential and non-residential land and buildings transaction tax (LBTT) rates or bands, save for an increase from 6% to 8%, generally effective from 5 December 2024, to the LBTT Additional Dwelling Supplement (ADS) applicable to purchases of certain second homes. The Budget’s business rates proposals included a new 40% rates relief, capped at £110,000 per business, for hospitality premises (including music venues with a capacity up to 1,500) liable to rates at the Basic Property Rate (i.e. those with a rateable value up to £51,000).
Alongside the Budget, the Scottish government published its tax strategy setting out how Scotland’s tax system “will continue to support public service delivery, provide stability for taxpayers and foster an effective and efficient tax environment for business and the economy”. The strategy inter alia sets out the government’s intention for the remainder of the current parliament not to introduce any new bands or increase the rates of Scottish income tax, and to uprate the Starter and Basic rate bands by at least inflation each year.
European Commission publishes common template for EU public CbC reports
Following a consultation over the summer, the European Commission has published the finalised implementing regulation and annex specifying a common template and machine-readable electronic format for use by businesses preparing country-by-country (CbC) reports under the EU’s directive on public CbC reporting. The public CbC directive requires multinationals with worldwide annual revenues of more than EUR 750 million to disclose publicly, on a country-by-country basis, corporate income tax information relating to their operations in each of the 27 Member States, as well as information for countries on the EU list of non-cooperative jurisdictions. Data relating to operations in other non-EU countries is included in one aggregated ‘rest of world’ line. As well as large EU-parented groups, large non-EU parented groups with large or medium-sized EU subsidiaries or branches will have reporting obligations. Reporting will generally take place within 12 months from the balance sheet date.
Member states are required to implement their public CbC rules with effect for periods commencing on or after 22 June 2024, although some member states have implemented rules with earlier effect. As a reminder, the earliest adopter is Romania, which has implemented the rules with effect for accounting periods from 1 January 2023 with reporting by 31 December 2024. To be within scope of the Romanian rules, a non-EU headed group will need to have at least a medium-sized subsidiary or branch in Romania. Further details are available here.
Colchester Institute Corporation (No. 2): Upper Tribunal VAT decision on further education business activities
Colchester Institute Corporation (the College) reclaimed VAT on its 2008 campus redevelopment, applying the Lennartz mechanism which (at the time) allowed VAT recovery on costs relating to non-business activities, subject to a balancing output tax charge over the following ten years. In 2014, the College decided that the provision of fully-funded further education (FE) was actually an exempt business activity, and submitted a claim for repayment of the balancing charge. In 2020, the Upper Tribunal (UT) held that the College’s supplies were exempt, and it should not have applied Lennartz. However, the UT ruled that the College’s claim should be reduced to nil, applying rules on set-off. Nonetheless, the finding in relation to exemption potentially justified the College’s decision (in 2015) to cease paying any more output tax. HMRC disagreed, and assessed the College for underdeclared output tax. The First-tier Tribunal upheld the College’s appeal, which HMRC subsequently appealed, on the basis that the 2020 UT decision was wrongly decided.
Unlike the FTT, the UT is not bound by previous decisions of the UT, but would normally follow an earlier UT decision. Accordingly, the Upper Tribunal has rejected HMRC’s subsequent appeal. HMRC recognised that this was a foregone conclusion and did not seek to persuade the UT that the 2020 UT decision was wrong, but rather reserved their right to argue the point in any appeal to the Court of Appeal, which is not bound to follow the UT decision and may, HMRC submit, consider the matter afresh. It now remains to be seen whether HMRC are given leave to appeal to the Court of Appeal, and what, if anything, the UT decision means in respect of any adverse effects on the FE sector’s ability to access VAT reliefs such as the zero rate on the construction of relevant charitable buildings, and the reduced rate on supplies of fuel and power.
EMEA Dbriefs webcasts
The next EMEA Dbriefs tax webcast will be on Tuesday 10 December 2024 at 12:00 GMT/13:00 CET. Mandatory payrolling all benefits in kind – the end of P11Ds (Part 3) is the third webcast in our Payroll mini-series, and our presenters will examine the forthcoming change, confirmed by the government in the Autumn Budget, that will require employers to report and account for income tax and social security on taxable benefits in kind through the payroll from the start of the 2026-27 tax year.
Then, on Wednesday 11 December 2024 at 12.00 GMT/13.00 CET, there will be the latest webcast from our Global Employer Services A world of talent series: Unlocking talent in a boundaryless world: navigating global opportunities. Our presenters will discuss how organisations can acquire, retain and develop the right possible talent and the challenges in managing a diverse and global talent pool.