Business Tax Briefing

OECD Inclusive Framework publishes consolidated version of Pillar Two commentary

On 25 April 2024, the OECD/G20 Inclusive Framework published a consolidated commentary to the Pillar Two model global minimum tax rules. The consolidated commentary puts together in one document the original Pillar Two commentary (first published in March 2022) and subsequent further releases approved and published by the Inclusive Framework before the end of December 2023, including on the country-by-country reporting safe harbour (published in December 2022) and the three sets of Agreed Administrative Guidance on Pillar Two (published in February, July and December 2023). Please see Deloitte’s alert for more details on the structure of the consolidated commentary and its accompanying examples.

UK and Scottish governments agree on devolution of building safety levy

The UK and Scottish governments have published a joint response to their January 2024 consultation on potentially devolving taxation powers to enable a building safety levy to be introduced in Scotland. In 2021, the UK government first announced its plans to introduce such a levy in England, payable by property developers applying for building control approval for new residential property developments, to help fund the repair of buildings with historical safety defects. After considering the responses, the governments have now confirmed that they are willing to proceed. The UK government will propose the required secondary legislation to devolve the power (an Order in Council under the Scotland Act 1998) in due course, and the Scottish Parliament will have an opportunity to scrutinise the draft order and the further legislation required to establish the levy.

Treasury publishes regulations on tax losses following business transfers by building societies

Following a consultation in January 2024, on 23 April 2024 HM Treasury issued The Mutual Societies (Transfers of Business) (Tax) (Amendment) Regulations 2024 (SI 2024/555). The new regulations will update existing building society corporation tax regulations, introduced in 2009, on the use of trade losses following transfers of businesses. According to HMRC, the amendments reflect the general changes to the treatment of tax losses following business transfers introduced as part of the 2017 corporation tax loss reforms, and will restore a level playing field between building societies and other companies including banks. The regulations come into force on 15 May 2024, but can apply with relieving effect to transfers occurring on or after 1 January 2023. HMRC have published a policy note and explanatory memorandum with further details.

Upper Tribunal dismisses ‘wholly and exclusively’ appeal regarding pension scheme

The Upper Tribunal has dismissed the appeal of two taxpayers in AD Bly Groundworks and Civil Engineering Limited and Another v HMRC, on whether large accruals arising following implementation of an ‘unfunded unapproved retirement benefit scheme’ (UURBS) were allowable for corporation tax purposes. Under the UURBS, the appellants promised to provide directors and key employees with pension amounts in the future, calculated by reference to the estimated profits for the relevant year – ranging between 80% and 100% of the companies’ estimated profits before tax. Between 2012 and 2014, the companies made accounting provisions for the liability, and claimed deductions to reduce their corporation tax liability significantly. HMRC, however, considered the expenses were not incurred ‘wholly and exclusively’ for the purposes of the trade, and thus were not allowable under section 54 Corporation Tax Act 2009.

The First-tier Tribunal found that the primary purpose for making the accruals was to reduce the liability to pay corporation tax without incurring any actual expenditure, and after analysing the relevant case law, it agreed that the expenses were not incurred ‘wholly and exclusively’ for the purposes of the trade. Whilst the Upper Tribunal disagreed on the precise nature of the tax advantage sought by the taxpayers, it agreed that this was a case of a payment being made with the object of artificially reducing their taxable profits, and that the First-tier Tribunal was entitled to conclude that the expense was not incurred wholly and exclusively for trading purposes.

Whilst not necessary to dismiss the appeal, the Upper Tribunal also considered and dismissed a backup argument from HMRC that the expenditure would have otherwise been disallowed as being within scope of section 1290 CTA 2009 (‘Employee benefit contributions’).

Company Tax Return taxonomies accepted by HMRC

For most corporation tax returns, HMRC require a valid submission to include an electronic version of the company’s financial accounts marked up in iXBRL in accordance with an appropriate iXBRL taxonomy. HMRC updated their guidance page Taxonomies accepted by HMRC earlier this week. Two new taxonomies have been added to the page’s tables of acceptable iXBRL taxonomies (‘FRC 2024’ and ‘US GAAP 2023’). An end date of 31 March 2025 has also been added for acceptable use of the ‘FRC 2022’ taxonomy.

OECD publishes Taxing Wages 2024

The OECD has published the latest in its annual series of employment tax reports Taxing Wages. The latest report shows that the average ‘tax wedge’ – i.e. the average total taxes on labour costs paid by employees and employers as a percentage of the total labour cost to the employer – across the OECD for a single worker earning an average wage was 34.8% in 2023 (an increase by 0.13 percentage points from 2022). The tax wedge ranged from 53% in Belgium to 0% in Colombia. The equivalent figure for the United Kingdom for 2023 was 31.3% (a decrease of 0.4 percentage points from 2022), ranking the UK’s employment tax burden 11th lowest out of the 38 OECD countries.

Qubic Advisory Services: VAT record-keeping requirements for supplies of investment gold – Upper Tribunal

In 2019-20, HMRC imposed penalties of £14.8 million on Qubic Advisory Services Limited for failure to issue proper invoices and keep accurate records for its supplies of investment gold. Such obligations arise when gold is delivered or made available to customers, even though the supply of investment gold can, itself, be VAT exempt. The Upper Tribunal has now ruled that Qubic did not deliver or make gold available to its customers. It purchased gold from BullionVault (an internet-based retail-accessible platform), which it transferred to designated employees of its clients.

In April 2023, the First-tier Tribunal held that the transfer triggered Qubic’s invoicing and record-keeping requirements. However, BullionVault’s service was designed to allow customers to invest in gold efficiently, but was not intended primarily as a service for customers who wanted to take physical possession. For example, the transfer gave the employee a right to a specific quantity of bullion in a specific vault, not to part of a specific gold bar. The Upper Tribunal, on reviewing the contracts, concluded that the employees (and Qubic itself) had waived their rights to withdraw gold from the vault. Consequently, the Upper Tribunal concluded that the employees did not have the right to obtain possession of the gold, and that Qubic was not subject to the invoicing and record-keeping requirements. Its appeal against the penalties was therefore allowed. (Contact: Rob Holland)

EMEA Dbriefs webcasts

The next EMEA Dbriefs Tax webcast is on Tuesday 30 April 2024 at 12.00 BST/13.00 CEST. Sustainable And Resilient Supply Chains – How Does Tax Play Its Part?, hosted by Gareth Pritchard, will discuss the importance of robust supply chain management for businesses to stay agile. By considering the tax implications in supply chain design, businesses can ensure cost optimisation, compliance with tax regulations, and obtain a competitive edge in the face of evolving economic landscapes.