Business Tax Briefing

A weekly round-up of corporate, employment and indirect tax news


Finance Bill progress

As previously reported, the second reading of the Finance (No. 2) Bill is scheduled for Tuesday 13 April. The Committee of the Whole House stage is provisionally scheduled for Monday 19 and Tuesday 20 April and will consider selected parts of the Bill. The selection of clauses to be considered by the Whole House is set out in a programme motion, to be put to the Commons at the conclusion of the Bill’s second reading on 13 April. The rest of the Bill will go to a Public Bill Committee for scrutiny. The Public Bill Committee stage is due to finish by 6 May. The House of Commons Library has produced a briefing on the Bill and the legislative process.

Scrutiny of international treaties and other international agreements

The Commons Public Administration and Constitutional Affairs Select Committee is to conduct an inquiry into the scrutiny of international treaties and has issued a call for evidence. It is inviting evidence inter alia on what roles Parliament, and the House of Commons in particular, should have at different stages of the treaty making and implementation in relation to different types of treaties, and on what basis. Responses are invited by 7 June 2021.

Freeports selection decisions

HM Treasury and the Ministry for Housing, Communities and Local Government have published a note on the process and rationale for the selection of the eight successful Freeport locations in England announced at the Budget in March 2021. The eight successful bids were: East Midlands Airport, Felixstowe & Harwich (Freeport East), Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside and Thames.

Lapsed share options: permission to appeal to Supreme Court

HMRC have been given permission to appeal to the Supreme Court against the Court of Appeal’s judgment in HMRC v NCL Investments Limited & Another. The issue is the availability of a ‘general principles’ deduction for the accounting cost associated with employee equity awards in cases where a statutory deduction was not available. These deductions were claimed prior to an amendment to Part 12 of CTA 2009 in March 2013, which was introduced to prevent any further deductions being claimed on this basis. The cases involved deductions claimed under five different share plans, as well as the use of an Employee Benefit Trust to grant and settle the awards and recharge agreements for the subsidiaries to pay the IFRS2 cost to the parent. The Court of Appeal, the Upper Tribunal and the First-tier Tribunal all held that the accounting debit arising under IFRS2 was deductible as a trading expense of the employing companies.

HMRC cryptoassets manual

HMRC have published their new manual on cryptoassets. The manual largely consists of material that has been previously published by HMRC, though the guidance has been expanded in places. In particular, HMRC set out more detail on their view of allowable costs and expenses for capital gains tax (CGT) and state that non-fungible tokens should not be pooled with other assets for CGT purposes. The guidance on the situs (location for tax and legal purposes) of assets for CGT purposes is largely consistent with the previous guidance. As before, HMRC comment that situs for inheritance tax purposes will follow the common law position and do not elaborate further.

Commission refers UK to CJEU re Gibraltar State aid recovery

In December 2018, the European Commission found that both Gibraltar's corporate tax exemption regime for interest and royalties from 2011 to 2013 (which has since been abolished), as well as five individual tax rulings, were illegal under EU State aid rules. The deadline for the Gibraltar authorities to implement the Commission’s decision and recover all illegal aid was 23 April 2019 (i.e. four months from the official notification of the Commission decision). The Commission announced on 19 March 2021 that the Gibraltar authorities have not yet recovered all the illegal State aid. The Commission has therefore decided to refer the UK to the CJEU.

BEPS MLI: Greece and Hungary deposit instruments of ratification

The OECD has announced that Greece and Hungary have deposited their instruments of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the BEPS multilateral convention or BEPS MLI) with the OECD. Greece’s finalised list of reservations and notifications is here. Hungary’s finalised list of reservations and notifications is here. There is a list of all countries' provisional or ratified MLI positions as at 30 March 2021 here.

COVID-19: Tribunal appeals: practice direction

The President of the First-tier Tribunal Tax Chamber has extended the Provisional Practice Statement on categorisation of tax cases in the Tax Chamber, first issued on 23 March 2020, until 30 June 2021. The Provisional Practice Statement relates to the way the Tax Chamber allocates cases to the Default Paper cases category in order to manage its workload appropriately during the COVID-19 pandemic. It was previously extended by a Practice Statement issued on 9 September 2020. A Practice Direction on adjusting the working of the First-tier Tribunal and the Upper Tribunal during the COVID-19 pandemic, covering inter alia remote hearings, has been extended to 18 September 2021, subject to minor amendments.

Sale and leaseback does not trigger VAT self-supply charge: Supreme Court

Balhousie Holdings Ltd had a new care home constructed, and financed its development through a sale and leaseback with a Real Estate Investment Trust. The construction qualified for zero-rating, but in 2019 the Court of Session ruled that Balhousie had disposed of its entire interest in the property through the sale (which immediately preceded the leaseback), and this triggered a self-supply charge that clawed back the zero-rating relief. The Supreme Court has now overturned that decision. The purpose of the self-supply charge was to encourage businesses like Balhousie to commit to building and operating care homes for at least ten years. In the Supreme Court’s judgment, the sale and leaseback occurred simultaneously and were indissolubly bound together, and in that context, there was no point when Balhousie did not have an interest in the property. As Balhousie had not disposed of its entire interest, the self-supply charge did not arise. The majority of the Court found it unnecessary to apply the CJEU’s reasoning in Mydibel, which suggests that sale and leaseback transactions should in some situations be regarded as a means of finance rather than as two separate transactions for VAT purposes. 

Historical bad debt relief claim rejected: Upper Tribunal

A time limit for VAT bad debt relief (BDR) claims was introduced in 1997 with prospective effect only, and to this day it therefore remains possible to submit BDR claims for 1989-97. The Upper Tribunal’s decision in Saint-Gobain Building Distribution Ltd, however, has shown how difficult this can be in practice. Many such claims are based on an acceptance that legal title to goods did not transfer to customers because of retention of title clauses which, combined with a deficiency in the BDR scheme at the time, would have prevented businesses from making claims. However, retention of title clauses are not always effective – where builders’ merchants such as Jewsons (owned by Saint-Gobain) sold timber, bricks, or copper pipe, legal title probably transferred to customers when they incorporated the goods into buildings regardless of any retention of title clauses. Consequently, the Upper Tribunal saw nothing wrong with the First-tier Tribunal’s conclusion that Saint-Gobain had been able to claim BDR in the 1990s, and had failed to prove on the balance of probabilities that it had not. Its appeal was dismissed.

COVID-19: help and information

A reminder that you can access a wide range of information, help and advice on responding to and recovering from COVID-19 here and also at our Deloitte global COVID-19 webpage.