Business Tax Briefing

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

18/06/2021

Finance Act 2021

As reported last week, the Finance Act 2021 received Royal Assent on 10 June 2021. The Act has since been published here (chapter 26). The House of Commons Library has updated its research briefing on Budget 2021 and the Finance Bill to take account of Royal Assent.  

Coronavirus Job Retention Scheme: updated guidance

HMRC have updated their guidance on the Coronavirus Job Retention Scheme (CJRS):

National Insurance Contributions Bill

The National Insurance Contributions Bill had its second reading in the Commons on Monday 14 June 2021. No amendments were made. The debate is here. The Bill will introduce:

  • Zero-rate of secondary Class 1 National Insurance contributions (NICs) for Freeport employees;
  • Zero-rate of secondary Class 1 NICs for armed forces veterans;
  • Exemption for COVID-19 Test and Trace Support Payments for Class 4 and Class 2 NICs, which are paid by the self-employed;
  • Provisions allowing changes to the Disclosure of Tax Avoidance Schemes (DOTAS) regime as it applies to NICs avoidance schemes.

The Bill now moves into a Public Bill Committee. The Public Bill Committee will start and conclude its examination of the Bill on Tuesday 22 June. Amendments tabled for the Public Bill Committee are here. As yet, there are no government amendments.

HMRC Spotlight 58: pension scheme tax avoidance

HMRC have issued a new  Spotlight publication. Spotlight publications highlight those  schemes about which HMRC consider there is the greatest need to warn potential users. Spotlight 58 deals with tax avoidance arrangements involving a company creating an unfunded obligation to pay a pension to one or more of its directors. That obligation is typically transferred shortly afterwards to a closely-associated third party, often with unusual features, such as a spouse agreeing to pay his or her partner a pension. The aim is create a corporation tax deduction for the company, but without any immediate liability to income tax or NICs arising on the recipients. HMRC warn that, in their view, the arrangements do not achieve the tax savings promised, and they will seek to challenge anyone promoting or using these arrangements. They also warn that they are considering whether the General Anti-Abuse Rule (GAAR) might apply to any arrangements entered into after 16 July 2013. Where the GAAR applies and the arrangements were entered into after 14 September 2016, a 60% GAAR penalty may apply.

BEPS MLI: HMRC publish MLI-synthesised text of UK/Albania treaty

HMRC have published the synthesized text of the  Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS multilateral convention or MLI) and the 2013 UK/Albania Double Taxation Convention.  

Unless stated otherwise, the provisions of the MLI have effect with respect to the Convention:

  • In the UK and Albania, for taxes withheld at source, from 1 January 2021;
  • In the UK, from 1 April 2022 for corporation tax and from 6 April 2022 for income tax and capital gains tax; and
  • In Albania, for other taxes, for taxable periods beginning on or after 1 July 2021.

New open database of court judgments from April 2022

The government is to create a publicly-accessible open database of court judgments in the National Archives from April 2022. The press release from the Ministry of Justice and HM Courts and Tribunals Service states that ‘judicial review rulings, European case law, commercial judgments and 'many more cases of legal significance from the High Court, Upper Tier Tribunal, and the Court of Appeal' will be included. There are multiple open access sources for court judgment publications, of which BAILII is the largest. The long-term aim is for all of them to migrate onto the National Archives website. BAILII will continue to provide free access to judgments for other jurisdictions, including Scotland, Northern Ireland and the Commonwealth as well as for England and Wales. 

Commons Library: updated briefing on the Digital Services Tax

The House of Commons Library has updated its research briefing on the UK Digital Services Tax (DST). The briefing discusses the background to the government's introduction of DST from 1 April 2020, in the context of wider concerns as to the challenge of taxing digital businesses and moves to agree reforms to the international tax system. 

VAT: Royal Opera House: dining to Mozart: Court of Appeal 

The Royal Opera House’s production of Don Giovanni runs for 3½ hours, so opera-goers may wish to visit the Balconies restaurant in the opera house for a starter and main course before the performance, and return to their table for dessert and coffee in the interval. If the costs of staging the performance had a ‘direct and immediate’ link to the taxable catering as well as the exempt ticket sales, then the Royal Opera House could recover part of the associated VAT. However, when is a link sufficiently direct, and sufficiently immediate? In the Court of Appeal’s judgment, the fact that the staging of the production was commercially essential to generating catering turnover (i.e. without the opera, far fewer people would have dined at the restaurant) did not prove the required link. Although the catering might not have taken place but for the customers who came to see the opera, a direct and immediate link is not established by a simple ‘but for’ test. Furthermore, the Court of Appeal considered that case law concerning input tax recovery by businesses making taxable and non-business supplies was not relevant to the apportionment of input tax between taxable and exempt supplies. The Court of Appeal concluded that the Upper Tribunal had been right to find in favour of HMRC, and dismissed the Royal Opera House’s appeal. 

Outsourced fund management functions can be VAT exempt:  CJEU

DBKAG licensed software from SC GmbH that it used to measure the performance and manage the risk of special investment funds (SIFs). K provided tax services (creating tax statements to show income earned by individual investors) to another SIF manager. The CJEU has ruled that the VAT exemption for SIF management can apply to such services. The services were only part of the overall fund management activity, and they depended on information supplied by the fund manager, and were supplied to the fund manager. However, provided that they formed a ‘distinct whole’, they could be exempt – SIF management does not become exempt only if it is outsourced in its entirety. The CJEU also held that the software and the tax services were capable of being ‘specific and essential’ to the management of the SIFs. It noted that fund administration is listed as a form of collective portfolio management in the UCITS Directive, and held that it could have an intrinsic link to fund management if the tax reports were required by Austrian law on SIFs. The CJEU’s reasoning supports the conclusion of the Upper Tribunal in Blackrock that automated fund management can be exempt. Please see here for further commentary.