Business Tax Briefing

Autumn Statement

The Chancellor of the Exchequer, Jeremy Hunt MP, delivered his Autumn Statement on 22 November 2023. Analysis of the tax announcements can be found on our dedicated Autumn Statement website here, including our commentary on individual measures. A recording of our Dbriefs webcast on the Autumn Statement is available to watch on demand here.

HMRC’s overview of tax legislation and rates (OOTLAR), which lists the tax policy measures announced, generally shows how and when they will be legislated and includes links to relevant tax information and impact notes is here. Key tax measures announced included:

• 100% first year capital allowances for companies investing in qualifying plant and machinery (‘full expensing’), and 50% first-year allowances for expenditure on special rate assets, will be made permanent. These rules were originally enacted following Spring Budget 2023 on a temporary basis subject to expiry on 31 March 2026.
• Confirmation that the current Research and Development Expenditure Credit (RDEC) regime for large companies and the separate Small and Medium Enterprise (SME) scheme will be merged for accounting periods beginning on or after 1 April 2024.
• The ‘Offshore Receipts in respect of Intangible Property’ (ORIP) rules will be abolished in respect of income arising from 31 December 2024. The repeal will take place alongside the introduction of the Undertaxed Profits Rule (UTPR), which forms part of the G20/OECD Pillar Two global minimum tax framework, that will apply in the UK for accounting periods beginning on or after 31 December 2024.
• The main rate of Class 1 employee National Insurance Contributions (NICs) will be reduced from 12% to 10%, with effect from 6 January 2024. The main rate of Class 4 self-employed NICs will be reduced from 9% to 8%, and self-employed individuals will no longer be required to pay Class 2 NICs, with effect from 6 April 2024.

A Finance Bill, referred to in the Autumn Statement documents as ‘Autumn Finance Bill 2023’, will be introduced into the House of Commons next week.

The National Insurance Contributions (Reduction in Rates) Bill has been separately introduced to enact the Autumn Statement’s NICs rate changes. The text of the bill was published yesterday alongside its explanatory notes. This bill is scheduled to have its remaining Commons stages on 30 November 2023.

Supreme Court allows taxpayers’ appeal on income tax ‘Transfer of Assets Abroad’ rules

The Supreme Court has unanimously allowed the taxpayers’ appeal, and dismissed HMRC’s cross-appeal, in the income tax case Fisher and another. The judgment concerns the application of the Transfer of Assets Abroad (TOAA) rules (at the relevant time, sections 738 to 746 of the Income and Corporation Taxes Act 1988, since re-written as Chapter 2, Part 13, Income Tax Act 2007) which, subject to conditions, can continue to impose an income tax charge on a UK-resident individual following a transfer by them of an income-generating asset to a person overseas. HMRC argued that the rules were applicable following a transfer of a business operated by a UK-incorporated company, owned by members of the Fisher family, to a Gibraltar company also owned by the Fishers. HMRC, inter alia, argued that, because the Fishers, together, owned the controlling interest in the UK company, they should be treated as transferors of the business’s assets for the purposes of the rules. The Supreme Court dismissed this argument, holding that the relevant section did not apply to an individual in relation to a transfer made by a company in which they are a shareholder. The Court noted that, in contrast to other statutory regimes, there were no principled criteria set out in the statute that could be used to determine the circumstances in which a shareholder should be treated as responsible for a transfer made by a company.

BEPS MLI – Azerbaijan sign; synthesised text of UK-Norway treaty published

The OECD has announced that Azerbaijan signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS MLI) on 20 November 2023, becoming the 102nd jurisdiction to join the MLI. Azerbaijan’s provisional list of notifications is here, and it is expected that the operation of the 1994 UK-Azerbaijan Double Taxation Convention will be modified in due course once the MLI is ratified by Azerbaijan.

The 2013 UK-Norway Double Taxation Convention became subject to the BEPS MLI in 2020. The Norwegian Ministry of Finance has published a ‘synthesised text’ showing the effect of the MLI’s modifications on the treaty.

Corporation tax insurance company structural assets tax regulations made

Further to consultation by HMRC on draft regulations earlier in 2023, on 20 November 2023, HM Treasury  made the Insurance Companies (“The Long-term Business Fixed Capital”) Regulations 2023 (SI 2023/1236). The regulations exercise HM Treasury’s powers under section 137, Finance Act 2012 to specify descriptions of assets that are to be regarded as being, or as not being, structural assets of an insurance company’s long-term business. The accompanying explanatory memorandum notes this is significant as the income and gains from such structural assets are excluded from an insurance company’s calculation of its trading profits for corporation tax purposes. The regulations will take effect in relation to accounting periods beginning on or after 1 January 2024.

Simple Energy Limited: VAT treatment of ‘refer a friend’ scheme – First-tier Tribunal

New customers who signed up with Bulb for gas and electricity were not only given a £50 reward, but were also emailed a unique link that they could share with their friends. For every friend (‘recruit’) that signed up with Bulb through this link, the customer (‘referrer’) received a further £50 reward. This ‘refer a friend’ scheme was one of Bulb’s most successful methods of attracting new customers, accounting for between 20% to 33% of sign-ups in 2018-2022. In HMRC’s view, the VAT treatment of the two rewards was different. The initial £50 received by the customer for signing up was a discount against Bulb’s energy charges. However, the further £50 deducted from their bill each time the referrer successfully recruited a friend for Bulb represented consideration for a supply they made to Bulb and could not be treated as a discount. The First-tier Tribunal agreed. There had to be a direct link between the reward and something that the referrer did for Bulb (rather than something that the recruit might later do). However, the threshold for what the referrer had to do for their reward was low. Simply forwarding an email to some friends required little effort, but it was dissociable from the referrer’s status as a Bulb customer. Consequently, the refer a friend reward should not be treated as a £50 discount from the price of gas and electricity supplied by Bulb. Bulb’s appeal was dismissed. (Contact: David Walters)

EMEA Dbriefs webcast

The next EMEA Dbriefs Tax webcast is on Tuesday 28 November 2023 at 13.00 GMT/14.00 CET. Future Of Reward: Beyond The Board is from our Global Employer Services Seizing the future series. Our panel of specialists will discuss how they see the reward market evolving, and how employees are increasingly placing more value on the holistic work experience and not just monetary reward. They will discuss how to differentiate an organisation through a broader reward and benefits offering, and how to maximise the value of these through strong communications.