Business Tax Briefing

Finance Bill update

The Finance Bill completed its Committee Stage proceedings in the House of Commons after two hearings before a Public Bill Committee on the morning and afternoon of 16 January 2024. The Bill’s clauses and schedules were approved with no amendments made. No dates have been announced yet for the Bill’s remaining Commons stages (Report Stage and Third Reading).

Government publishes simplification update

On 16 January 2024, HMRC published a ‘simplification update’, setting out a package of measures intended to support the government’s “ambition to simplify and modernise the tax system” and “to make the tax system simpler and fairer.” The Financial Secretary to the Treasury (Nigel Huddleston MP) issued a ministerial statement summarising the update, which includes changes across five different areas:

• Reform of transfer pricing, permanent establishment and diverted profits tax: the government has published a summary of responses to its June 2023 consultation on proposals to reform UK law in relation to transfer pricing, permanent establishments, and diverted profits tax (DPT). The government will continue to engage with stakeholders on its proposals with a view to publishing draft legislation for consultation later in 2024.
• Enhancing the non-reimbursed expenses service: HMRC plan to simplify the process for many employees claiming tax relief on their non-reimbursed expenses. The government is designing a new, online service for employees to claim tax relief on all of their expenses in one place and for HMRC to automatically process claims. Further details will be provided later this year.
• Mandating the payrolling of benefits in kind: the government will mandate the reporting and paying of income tax and Class 1A NICs on benefits in kind via payroll software from April 2026. HMRC will engage with stakeholders and draft legislation will be published later this year.
• Tax simplification for alternative finance: a consultation has been published proposing changes to capital gains rules, for both individuals and companies, to address differences in the tax treatment when a commercial or residential property is refinanced using alternative finance arrangements (e.g. Islamic financing) rather than through conventional financing. The consultation also seeks views on whether there are any capital allowances implications. The consultation is open until 9 April 2024.
• National Insurance credits for parents and carers: as first announced in April 2023, the government intends to introduce a route for people to apply for National Insurance credits for parents and carers for tax years where they have not claimed child benefit. The credit will be available to claim from April 2026, and the eligibility criteria will be closely based on child benefit eligibility criteria. The government will bring forward secondary legislation as soon as possible.

Court of Appeal allows HMRC appeal on the meaning of “more than incidental”

The Court of Appeal has unanimously allowed HMRC’s appeal in the corporation tax case Dolphin Drilling Limited. The judgment concerns the ‘hire cap’ rules within Finance Act 2014, applicable to contractors in the offshore oil industry. The dispute centred on whether it was “reasonable to suppose” that the use of a leased converted oil rig (the Borgsten) for accommodation purposes was “unlikely to be more than incidental to another use, or other uses” to which the Borgsten was likely to be put. The Court of Appeal agreed with HMRC that the First-tier Tribunal had misdirected itself when analysing the statutory test, by focussing on whether the accommodation use was in some way lesser than other uses. Reflecting the ordinary language, Lord Justice Peter Jackson considered that for a use to be “incidental to” another use, it must also arise out of that other use (or be similarly connected). Applying the test to the facts, the Court of Appeal found that, whilst the accommodation use may have been a “secondary” use of the Borgsten, it was still a significant and independent use and not “incidental to” its other uses, and thus allowed the appeal.

HMRC guidance on availability of capital allowances for partnerships with corporate partners

HMRC have added additional guidance to two pages in their Capital Allowances Manual (CA11145 and CA23163) to clarify that partnerships with corporate partners are able to claim certain first year capital allowances that are only available to companies within the charge to corporation tax, including the super-deduction (prior to 31 March 2023) and full expensing (since 1 April 2023). The guidance confirms that this also applies to mixed partnerships (i.e. where some partners are within the charge to corporation tax and others are within the charge to income tax instead) such that those partners who are within the charge to corporation tax can obtain the benefit of the super-deduction or full expensing. A similar confirmation was made by the Financial Secretary to the Treasury earlier this month in a debate on the current Finance Bill.

Walkers Snack Foods Limited: whether zero-rating applies to Sensations Poppadoms

Walkers’ Sensations Poppadoms are made of potato granules (18%), potato starch (18%), and modified potato starch (4%). They also contain gram flour (14%) and rice flour (14%). They are not potato crisps (which are excepted from the zero-rating), but they are subject to the standard rate of VAT if they are “similar products made from the potato, or from potato flour, or from potato starch”. The First-tier Tribunal has ruled that potato granules were a form of potato (cooked and dried), and that when combining all the potato ingredients there was sufficient potato content for the Poppadoms potentially to be standard-rated. The Tribunal then considered that Poppadoms were marketed like crisps, would be found in the snack food aisle next to crisps, would be eaten like crisps, and had a similar texture and ingredients to crisps. Applying a multifactorial assessment, the Tribunal concluded that they were similar to crisps even though they might be called ‘poppadoms’ and despite a market survey produced by Walkers (which the Tribunal concluded was not particularly helpful). Walkers initially put forward an alternative argument that Poppadoms are designed for dipping and therefore require “further preparation”, and so would qualify for zero-rating. However, Walkers’ marketing material, including packaging, suggested that no preparation was necessary. Accordingly, Walkers did not rely on this argument at the hearing. Sensations Poppadoms are therefore standard-rated. (Contact: Andrew Roberts)

EMEA Dbriefs webcasts

The next EMEA Dbriefs Tax webcast is on Tuesday 23 January 2024 at 14.00 GMT/15.00 CET. Update On Latest OECD Developments: Pillar Two is from our international tax series and is hosted by Alison Lobb. Our panel will discuss the further administrative guidance on the Pillar Two global minimum tax regime published by the G20/OECD Inclusive Framework in December 2023, together with an update on the implementation status of Pillar Two taxes at domestic country levels.

In case you missed it, a recording of this week’s EMEA Dbriefs Tax webcast Transfer Pricing - Effective Use Of Mutual Agreement Procedures is now available to watch on demand. Transfer pricing controversy continues to be a challenge for many businesses, resulting in an increasing need to access Mutual Agreement Procedures (MAPs) to resolve double tax arising as a result of transfer pricing adjustments. Hosted by Eddie Morris, our specialist panel discussed recent trends, insights and best practice in regards to transfer pricing and MAP.