Taxation (Post-transition Period) Bill
The Taxation (Post-transition Period) Bill was published on 8 December 2020, together with explanatory notes. The Bill will introduce changes to VATA 1994 and Taxation (Cross-border Trade) Act 2018 to reflect the operation of indirect taxes under the Northern Ireland Protocol. It therefore sets out (for example) how Northern Ireland (NI) businesses will account for acquisition VAT on supplies of goods from the EU, and introduces a customs duty charge where goods moved from Great Britain (GB) to NI are at risk of being moved into the EU, or where goods which are not Qualifying Northern Ireland Goods are moved from NI to GB. HM Treasury has published supporting documents which include tax information and impact notes for VAT and customs.
There are also measures not related to NI, including on the VAT treatment of online sales by overseas persons and low value importations, insurance premium tax anti-avoidance, and powers enabling HMRC to issue charging notices for the purposes of recovering State aid amounts. The State aid measure relates to the European Commission's Decision of 2 April 2019 that the group financing exemption within the UK's controlled foreign company (CFC) rules constituted unlawful State aid received by some UK companies for periods from 1 January 2013 to 31 December 2018. The UK is challenging the Commission’s decision via the European courts.
The Bill will also introduce a new model for the VAT treatment of goods arriving into the UK from 1 January. This will include the abolition of low value consignment relief (LVCR) for goods arriving in GB. (LVCR will continue to apply to an extent in NI), moving VAT collection away from the border for consignments not exceeding £135, placing the responsibility to pay VAT onto either an overseas seller or an online marketplace, and making online marketplaces liable for VAT on goods which are in GB at the point of sale. A tax information and impact note is also available.
The House of Commons Library has published a research briefing on the Bill. The Bill had its second reading and Committee stage in the Commons on 9 December 2020. It will have its final stages in the Commons on 15 December 2020.
Spending Review 2020
The Chancellor delivered his spending review for 2021-22 to Parliament on 25 November 2020. There were no significant tax policy announcements. Documents published included Spending Review 2020; Funding the Scottish Government, Welsh Government and Northern Ireland Executive and Policy costings: November 2020. The Office for Budget Responsibility published its Economic and fiscal outlook – November 2020. National Living Wage (NLW) and National Minimum Wage (NMW) rates from April 2021 were confirmed. The NLW will increase by 2.2% to £8.91, and will be extended in scope to apply to 23- and 24-year-olds for the first time. The Secretary of State for Work and Pensions announced the outcome of her statutory annual review of benefit and state pension rates. The new rates will apply in the tax year 2021/22, and come into effect on 12 April 2021. State pensions will be increased by 2.5%, in line with the government’s manifesto commitment. All other benefits will be increased in line with CPI.
Coronavirus Job Retention Scheme: updated guidance
HMRC have updated their guidance on the Coronavirus Job Retention Scheme (CJRS) to confirm that each month, after the deadline for making amendments to claims, an indication of the value of an employer's claim within the banded ranges set out will be published, together with the employer’s name and the Companies House number, where applicable. They have also updated the following:
Self-Employment Income Support Scheme: Treasury Direction; guidance
The Treasury has made a Direction in relation to the extension of the Self-Employment Income Support Scheme (SEISS) for the three months to the end of January. The main difference from the first two grants is that there is a narrower rule for determining eligibility. For the first two grants, it was sufficient to show that the business had been ‘adversely affected’ by COVID-19. The third grant is only available if the business has suffered ‘reduced activity, capacity or demand from that which could reasonably have been expected but for the adverse effect on the business of coronavirus’. A further update reflects that the online service for the third SEISS grant is now available.
Company governance; transparency: consultations
The government has published three consultations on the governance of companies, on which comments are invited by 3 February 2021. The key proposals are:
Querying power consultation: Companies House would have new powers to query information, to be exercised on a risk-based approach.
Accounts filing consultation: Views are invited on how companies might in future be able to file accounts once with the government, instead of providing separate filings to Companies House, HMRC and other agencies. It is also proposed to require all companies to file accounts to Companies House in digital format, and to give Companies House more powers to check information in those accounts.
Corporate directors’ consultation: It is proposed that corporate directors will be prohibited unless their own boards comprise all natural persons, and those natural persons have their identities verified.
Supreme Court gives judgment on limitation issues in FII GLO
The Supreme Court has given judgment in Test Claimants in the Franked Investment Income Group Litigation v HMRC (1) and (2). This is the latest judgment in the Franked Investment Income Group Litigation Order (FII GLO), which concerns long-running litigation on claims brought by UK multinational companies who argued that the (now repealed) advance corporation tax and FII rules imposed higher tax burdens on UK groups with foreign subsidiaries compared to UK groups without foreign subsidiaries, and hence infringed EU law. This particular judgment concerns limitation issues, namely whether Section 32(1)(c) of the Limitation Act 1980, which enables claims to be brought outside the normal six year limitation period, applies to a mistake of law, as well as to a mistake of fact, and when the time limit starts to run. The Court of Appeal had agreed with the claimants that in their case the limitation period started to run in 2006, when the CJEU gave its judgment in Hoechst. The Supreme Court allowed HMRC’s appeal, though for differing reasons. Four of the seven Justices who heard the appeal held that Section 32(1)(c) applies to mistakes of law, as well as to mistakes of fact, but that the time limit could run from an earlier stage, ie from when the claimants knew, or by undertaking reasonable diligence could have known, that they had a valid claim, rather than from the date of the Hoechst decision. In so doing, they held that the House of Lords erred in its 2006 judgment in Deutsche Morgan Grenfell. Three of the Justices would have held that Section 32(1)(c) could not apply to mistakes of law. The judgment could affect both existing and historic remedies sought in relation to a mistake of law. The case will now be remitted to the High Court to determine the ‘reasonable belief’ date on the facts of the case.
Virtual Christmas parties
HMRC have confirmed that the exemption from a taxable benefit arising when an employer provides an annual party (e.g. a Christmas party) to its employees will apply to the costs associated with virtual parties in the same way that it would for traditionally held parties. This is subject to the usual conditions being met, including making the party available to employees generally, and keeping the average cost below £150 per head. HMRC have updated their manual accordingly.
Use of marketed avoidance schemes: HMRC report, HMRC/ASA action
HMRC have published a report on taxpayers using avoidance schemes. This accompanies the announcement of a new action by HMRC and the Advertising Standards Authority aimed at reducing misleading marketing by promoters of tax avoidance schemes. A new joint enforcement notice requires promoters to be clear about the potential consequences of tax avoidance in online advertisements. HMRC have launched a media campaign on mass-marketed tax avoidance schemes. The main webpage Tax avoidance – don’t get caught out covers warning signs to look out for.
COVID-19: help and information
To help inform our clients and to enable them to understand how businesses can respond, recover and thrive in these times we are running a series of webinars focused on the economy, on particular sectors and on key roles within an organisation. You can register for future webcasts and view archived webcasts here. You can access more information here and also at our Deloitte global COVID-19 webpage. You can sign up to our Deloitte Tax Atlas COVID-19 Tax and Fiscal Measures microsite, which provides a high-level summary of tax and fiscal coronavirus measures that have been announced by governments, and our COVID-19 Signal Topic email alerts, here.