16 February 2024
HMRC launch tax administration call for evidence on enquiry powers, penalties and safeguards
On 15 February 2024, HMRC published a new call for evidence as part of their ongoing tax administration framework review. The call for evidence, which covers all major UK taxes, duties and national insurance contributions, looks at HMRC’s enquiry and assessment powers, penalty rules, and taxpayer safeguards, and in each area invites views on a wide range of potential options to reform aspects of these as part of the government’s commitment to establish a trusted and modern tax administration system. Many of the potential reforms listed highlight current inconsistencies between the rules for different UK taxes and identify opportunities for greater alignment. Other options would seek to simplify and/or improve the effectiveness of current rules. The call for evidence is open until 9 May 2024. HMRC state that responses to this call for evidence will inform any future policy proposals to reform the tax administration framework in these areas, which could then be subject to further consultation.
HMRC publish draft guidance on overseas and contracted-out research and development expenditure
The current Finance Bill, shortly due to become Finance Act 2024 following consideration by the House of Lords next week and Royal Assent, will introduce changes to corporation tax research and development (R&D) reliefs, generally applicable for accounting periods beginning on or after 1 April 2024. These changes include restrictions to the extent to which contractor payments for R&D and payments for externally-provided workers can qualify for relief where the R&D activity takes place overseas, and new rules for contracted-out R&D. On 9 February 2024, HMRC published draft guidance for consultation on these specific changes. The consultation is open until 1 March 2024. The draft guidance does not cover any other changes to R&D reliefs to be made by Finance Act 2024, however HMRC state that they will publish full guidance on these later this year.
UK and four other European countries update agreement with US on transitional Pillar One approach to DSTs
On 15 February 2024, the governments of the United Kingdom, Austria, France, Italy, Spain and the United States published a joint statement announcing an update to their October 2021 compromise agreement on a transitional approach to phasing out existing Digital Services Tax (DST) regimes. This is ahead of the proposed introduction of Pillar One ‘Amount A’ rules on reallocating taxing rights in favour of market countries, which includes a commitment to the withdrawal of DST regimes once Amount A commences. The original agreement defined an ‘Interim Period’ for credit of excess DST paid by the largest and most profitable multinationals in the scope of Amount A, on the assumption that Pillar One would be in force by 31 December 2023 at the latest. The updated joint statement extends the agreement by re-defining the ‘Interim Period’ to now run until a fixed date of 30 June 2024. The update also notes that the countries may further discuss their DST-related commitments at a later date. See here for previous coverage of the operation of the (now extended) original agreement.
IFS Tax Law Review Committee publishes report on thresholds in the UK tax system
The Tax Law Review Committee (TLRC) of the Institute for Fiscal Studies (IFS) has published a new report – Thresholds in the tax system: Policy and administrative considerations – examining the use of thresholds within the UK tax system. The authors, formerly of the Office of Tax Simplification, note that whilst thresholds can provide administrative savings, they can also present challenges for taxpayers. The report discusses the difficulties in the main tax threshold rules affecting individuals and small businesses and considers a range of principles and tools that could assist in the design of future tax policy. The authors’ recommendations include that policymakers should take particular care to minimise occasions when exceeding a threshold makes a taxpayer noticeably worse off (citing the example of the £100,000 income threshold for eligibility for Tax-Free Childcare), and to take care when setting threshold taper rates not to create significant barriers to taxpayers increasing their income.
Jersey Choice Ltd: removal of VAT low value consignment relief – Supreme Court
In 2012, low value consignment relief (LVCR) for postal imports, which eliminated the charge to import VAT, was removed for supplies from the Channel Islands. Judicial review proceedings taken by the governments of Jersey and Guernsey at the time challenging the removal were unsuccessful. The removal affected Jersey Choice Ltd, which grew horticultural products in Jersey and sold them to UK customers, applying LVCR. Jersey Choice brought proceedings against the UK government (HM Treasury) for breach of EU law, claiming £15 million for damages suffered. The High Court and Court of Appeal both struck out Jersey Choice’s appeal on the basis that it had no reasonable grounds for the claim. The Supreme Court has upheld the Court of Appeal’s judgment. The Channel Islands were within the EU customs union, but outside the EU for VAT purposes. Jersey Choice argued that the removal of LVCR amounted to a charge having equivalent effect to a customs duty and was contrary to the EU customs regime, which provides for the free movement of goods. However, the Supreme Court held that the legality of the removal must be assessed under the EU Principal VAT Directive, not the customs regime. As Jersey was a ‘third country’ in the context of the EU VAT regime, the EU principles of equal treatment and proportionality could not apply. The Supreme Court dismissed Jersey Choice’s appeal.
EMEA Dbriefs webcasts
You can catch up on demand with any recent EMEA Dbriefs tax webcasts you may have missed, including UK Tax Update – February, ‘Next-Gen’ Digital Invoicing And Reporting In The Modern Tax Environment, Update On Latest OECD Developments – Pillar Two, Accessing Global Talent: The Future Of Global Mobility and Transfer Pricing – Effective Use Of Mutual Agreement Procedures. If you want to be informed about upcoming webcasts, please subscribe to receive our bi-weekly mailing.