Business Tax Briefing

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

19/03/2021

Finance (No 2) Bill

The Leader of the Commons has confirmed that the Finance (No 2) Bill will have its Second Reading on Tuesday 13 April, the first day after the Commons returns after the Easter recess. This will be a general debate on the Bill. After that, selected parts of the Bill will be debated by a Committee of the Whole House, on dates still to be announced. The rest will then go to a Public Bill Committee for detailed scrutiny.

CJEU: Polish and Hungarian turnover taxes not unlawful State aid

In cases C-562/19 P Commission v Poland and  C-596/19 P Commission v Hungary the CJEU has upheld the EU's General Court in finding that progressive turnover taxes imposed by Hungary and Poland do not violate EU State aid rules, dismissing the appeals of the European Commission. The cases involved a Polish tax on the retail sector and a Hungarian tax on advertisements.  The CJEU found that EU law on State aid does not in principle preclude Member States from deciding to opt for progressive tax rates intended to take account of the ability to pay, nor does it require Member States to reserve the application of progressive rates only for taxes based on profits, to the exclusion of those based on turnover. The CJEU held that the General Court was justified in its conclusions that the Commission had not sufficiently established that the tax measures adopted by Hungary and Poland were designed in a 'manifestly discriminatory manner, with the aim of circumventing the requirements of EU law on State aid.' The judgments generally follow Advocate General Juliane Kokott’s Opinions published on 15 October 2020.

Income Tax (Construction Industry Scheme) (Amendment) Regulations 2021

The Income Tax (Construction Industry Scheme) (Amendment) Regulations 2021 will come into effect on 6 April 2021. The Construction Industry Scheme (CIS) sets out the rules for how contractors are required to make appropriate deductions from payments to sub-contractors, then pay the deductions to HMRC. Sub-contractor companies that have had CIS deductions made from contract payments  to them by contractors are entitled to set those deductions against their employer liabilities, such as Pay As You Earn (PAYE) tax or National Insurance contributions (NICs), under the Real Time Information (RTI) system for PAYE. HMRC say that this set-off facility is being abused by some employers to reduce their monthly employer liabilities, or to create spurious repayment claims. The new regulations will allow HMRC to correct or remove CIS set-off claims made on RTI returns where such claims are made on the basis of an error or omission, and will also prohibit sub-contractors, in some cases, from making further set-off claims for the remainder of a particular tax year. The rules on the costs of materials directly incurred by sub-contractors to fulfil a construction contract are also clarified.

This is the first exercise of a new power to make regulations authorising an officer of HMRC to correct an error or omission relating to a set-off claim, remove a set-off claim or prohibit a person from making a further set-off claim, which will be contained in FA 2004 s 62 and was given temporary statutory effect pursuant to Budget resolution number 27 passed on 9 March 2021.

Use of marketed avoidance schemes: HMRC report updated

HMRC have updated their Corporate Report on the use of marketed avoidance schemes which sets out the numbers and characteristics of taxpayers using avoidance schemes in 2018 to 2019. The diagram showing artificially reduced income levels among people who used avoidance schemes has been updated, as has the diagram showing the ten most common employment types for people who using avoidance schemes.    

Fifth Anti-Money Laundering Directive non-taxable trust registration deadline deferred

The Fifth Anti-Money Laundering Directive (5MLD) expands the trust registration requirements so that certain non-taxable trusts will need to register with HMRC and disclose beneficial ownership information, in addition to the existing requirement for certain taxable trusts to do so. The registration deadline for existing trusts that are newly brought within the scope of the registration requirements by 5MLD is 10 March 2022 (SI 2017 No 692).  However, HMRC have confirmed that the registration deadline will be deferred from 10 March 2022 until around 12 months after HMRC's online service allows non-taxable trusts to register. 

Mathias Cormann to be new OECD Secretary-General

The OECD has appointed Mathias Cormann as its next Secretary-General for a period of five years starting from 1 June 2021. Mr Cormann was until recently Australia’s longest-serving finance minister and leader of the government in the Australian Senate. He will replace José Ángel Gurría, who has been Secretary-General since 1 June 2016. 

Forthcoming Dbriefs

The next Dbriefs webcast is on Tuesday 23 March 2021, 12.00 GMT/13.00 CET. The title is Brexit - Rules Of Origin from our Indirect tax series, hosted by Caroline Barraclough. During the webcast our panel will provide an analysis of the Global Trade impact following the publication of the UK-EU Trade and Cooperation Agreement on 26 December 2020, with a particular focus on Rules of Origin. To register for the webcast, click here. There is another webcast on Wednesday 24 March 2021, 12.00 GMT/13.00 CET entitled Cloud Transformation: Adoption Of Subscription Models from our Indirect tax series, hosted by Charlotte Degadt. During the webcast our panel of experts will discuss how your organisation can adopt a subscription/’everything as a service’ model, looking at the potential tax impacts and some practical examples. To register for the webcast, click here

Reverse charge on overseas investment management fees:  CJEU

Wellcome Trust (a charitable fund worth over £23 billion which supports medical research) incurred fees of £65m over five years from non-EU investment managers. It is registered for VAT in the UK (because it also receives substantial property income) and therefore was not receiving services as a consumer (B2C). Some 25 years ago the CJEU ruled that Wellcome was not acting in a business capacity either (when managing its non-EU investments) so Wellcome argued it should not apply the reverse charge to the investment managers' services because it was not a ‘taxable person acting as such’ (i.e. receiving B2B services). The CJEU, however, has ruled that the definition of a business customer for the purposes of determining the place of a supply is broader than the definition of a business activity for input tax recovery purposes (the subject of its judgment in 1996). The definition of B2B services as being to a ‘taxable person acting as such’ is simply carving out services intended for the private use of the taxable person or their staff. Services which are received for a non-economic activity, such as the management of Wellcome’s non-EU equity portfolio, should be treated as B2B supplies, and the reverse charge applied. For further analysis of this judgment (and the impact of changes to UK place of supply rules from 1 January 2021) see here

Postponed import VAT accounting certificates: more issues

Earlier this month, HMRC reported that some postponed import VAT accounting (PIVA) certificates had accidentally included some of February’s imports on January’s certificates. Since then, another problem has emerged, and some taxpayers have been unable to access PIVA certificates at all. HMRC have amended their guidance to reassure taxpayers that certificates will become available again in due course. In the meantime, additional advice is provided on how to estimate import VAT on any VAT returns which are submitted before the issue is resolved. The guidance has also been updated to reflect that the ability to delay customs declarations for some imports from the EU has been extended from 30 June 2021 to 31 December 2021. 

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.