28 February 2025
The remaining Commons stages of Finance Bill 2024-25 (Report Stage and Third Reading) are scheduled for Monday 3 March 2025. The government has tabled 66 Report Stage amendments (labelled ‘Gov 1’ to ‘Gov 66’) and HMRC have published accompanying explanatory notes.
The majority of the amendments relate to the Bill’s provisions for the replacement of the rules for taxing non-UK domiciled individuals. On business taxation, amendments Gov 1 to Gov 4 relate to the Bill’s clauses on additional creative industry tax relief for visual effects (VFX) expenditure, and Gov 18 to Gov 20 relate to provisions on the treatment of qualifying payments made into a decommissioning fund for carbon capture and storage purposes.
A number of judgments in recent years, such as the Supreme Court’s judgment in July 2021 in FII Group Litigation, clarified the principles in applying EU law to, and conforming interpretations of, the UK’s double tax relief rules to certain overseas dividends received by UK companies prior to 1 July 2009. In 2021 and 2024, the First-tier Tribunal and Upper Tribunal (UT) gave decisions (the Post Prudential Closure Notice Applications/Appeals group litigation case) dealing, inter alia, with follow-up questions of what procedures must have been followed by affected taxpayers, in particular what constituted a valid claim for double tax relief for underlying tax (at the rate established by the courts for the appropriate level of relief under EU law). A wide range of questions was posed, reflecting the variety of circumstances of test claimants. HMRC won on most points at the UT. However, the UT agreed with the taxpayer on one significant issue (‘Issue 3’), concerning returns containing claims made for double tax relief for withholding tax only which HMRC subsequently opened an enquiry into.
Both parties appealed to the Court of Appeal, and it has now handed down its judgment in favour of HMRC. In each of the appealed issues, including Issue 3, the Court of Appeal agreed with HMRC, with the result that a statutory claim for double tax relief for the underlying tax had not been validly made in time. The judgment will be of particular interest to companies with outstanding claims in connection with the various cases (including FII GLO, CFC/Dividend GLO, BAT or Prudential) and section 79 TIOPA 2010, section 806(2) ICTA 1988, or Paragraph 51 Schedule 18 FA 1998 claims in respect of historical overseas dividends. (Contact: Bryan Flint)
The governments of the UK and Andorra have announced the signing of the Andorra-UK Double Taxation Convention on 20 February 2025. This will be the first double tax treaty between the two countries. Subject to conditions, the treaty will inter alia provide for 0% rates of withholding tax on cross-border payments of royalties, interest, and dividends.
The Convention will enter into force only once both countries complete their domestic parliamentary procedures for ratification and notify each other accordingly. Individual articles will then take effect in the UK and Andorra in accordance with the timings set out in Article 28 of the Convention.
On 24 February 2025, the OECD published a Consolidated Report on Amount B. Amount B is a new approach for transfer pricing baseline marketing and distribution activities that seeks to streamline and simplify the application of the arm’s length principle. All businesses, regardless of size, are potentially within the scope of Amount B if they carry out suitable distribution activities, and countries can adopt Amount B from 1 January 2025.
The consolidated report incorporates relevant materials on Amount B published by the OECD/G20 Inclusive Framework on BEPS in 2024. These include: the original Amount B report published in February 2024; the additional guidance on ‘covered jurisdictions’ and ‘qualifying jurisdictions’ published in June 2024; and the Amount B model competent authority agreement published in September 2024. According to the report’s introduction, “[the] content of the original publications has not been amended or modified; the Consolidated Report on Amount B simply replicates the original content for ease of reference.”
On 24 February 2025, HMRC published the new advisory fuel rates for company cars applicable from 1 March 2025. The previous mileage rates, effective from 1 December 2024, can be used for up to one month from the date the new rates apply. The rates for petrol engines sized 1401cc to 2000cc, and for diesel engines sized 1600cc or less, have both increased by 1 pence per mile. Rates for all other petrol and diesel engine sizes, liquefied petroleum gas (LPG) engine rates, and the advisory rate for fully-electric cars, are unchanged from the previous quarter.
At Autumn Budget 2024, the new government confirmed its intention to proceed with earlier plans to legislate for a new type of closed-ended investment fund vehicle for non-retail investors: the Reserved Investor Fund (RIF). Following on from a consultation on draft regulations in April 2024, HM Treasury have this week formally made the regulations setting the applicable tax rules for RIFs and their investors. HMRC’s accompanying explanatory memorandum is here. The regulations also include minor amendments to existing tax rules for Co-ownership Authorised Contractual Schemes (CoACS) in relation to life insurance companies investing in a CoACS. HMRC have published a separate impact note on these amendments here.
The First-tier Tribunal (FTT) has refused to strike out an appeal concerning the post-Brexit application of EU VAT law. In January 2023, Mr Poulton submitted a VAT refund claim under the DIY housebuilders scheme, the majority of which was refunded. In June 2023, he wrote to HMRC enquiring how he could reclaim VAT on certain additional invoices where it had been incorrectly charged (the services should have been zero-rated), as he was unable to reclaim the VAT from the supplier, which had gone into liquidation. HMRC treated this as a further claim under the DIY refund scheme, which it refused. Mr Poulton appealed that decision, and HMRC applied to strike out the appeal. HMRC consider that following Brexit there is no basis for making a Reemtsma claim (a claim for incorrectly paid VAT made directly to HMRC where it is impossible or excessively difficult to recover it from the supplier). However, the FTT was not satisfied that the parties had had an adequate opportunity to address the application of section 28 Finance Act 2024, concerning whether the ability to make Reemtsma claims had been preserved for post-Brexit periods by related legislation, and decided that this point should be left to the substantive hearing. The FTT considered Mr Poulton had a realistic prospect of succeeding in that argument, so refused to strike out the claim.
HMRC also argued that, if Reemtsma claims have survived Brexit, Mr Poulton had no reasonable prospect of success for a claim made under section 35 or section 80 of the VAT Act 1994. The FTT found that he did not have any right to repayment under section 80, which deals with claims for repayment of overstated or overpaid VAT. However, if it were possible to adopt a conforming (Marleasing) construction to extend Reemtsma claims in respect of VAT incorrectly levied by a contractor to a DIY builder, he had a realistic prospect of succeeding in an argument that a claim would be available under section 35, which governs the DIY refund scheme. Accordingly, the appeal will proceed to a hearing on the substantive issues.
The next EMEA Dbriefs tax webcast is on Tuesday 4 March 2025 at 12.00 GMT/13.00 CET. In UK Tax Update - March, hosted by Tim Waterhouse, our panel will discuss topical tax developments of relevance to UK businesses in relation to corporate taxes, employment taxes and indirect taxes.