Monthly Tax Update

Private Markets

This monthly briefing note summarises some tax and other news items of interest to UK-focused private companies and their management teams and shareholders.

United Kingdom  | Deloitte Private | 13/04/2021

UK Spring Budget 2021

Finance Bill progress

The second reading of the Finance (No. 2) Bill is scheduled for Tuesday 13 April. The Committee of the Whole House stage is provisionally scheduled for Monday 19 and Tuesday 20 April and will consider selected parts of the Bill. The selection of clauses to be considered by the Whole House is set out in a programme motion, to be put to the Commons at the conclusion of the Bill’s second reading on 13 April. The rest of the Bill will go to a Public Bill Committee for scrutiny. The Public Bill Committee stage is due to finish by 6 May. The House of Commons Library has produced a briefing on the Bill and the legislative process.

COVID-19 measures and announcements 

COVID-19: help and information

A reminder that we are running a series of webinars chaired by Ian Stewart, our Chief Economist, with contributions from experts across the firm. We will be sharing our insight on the global economic impact of COVID-19, the challenges organisations are facing, how they are responding and recommendations on the actions they can take. You can register for the webinars here. You can access more information here and also at our Deloitte global COVID-19 webpage.

Coronavirus Job Retention Scheme: updated guidance

HMRC have updated their guidance on the Coronavirus Job Retention Scheme (CJRS):

Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension) Regulations

The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2021 came into force on 26 March 2021. They further extend some of the temporary measures introduced by the Corporate Insolvency and Governance Act 2020 in response to the COVID-19 pandemic, including restrictions on the use of statutory demands and winding up petitions and the provisions suspending liability for wrongful trading from 31 March 2021 to 30 June 2021, and the modifications to moratorium provisions from 30 March 2021 to 30 September 2021.

Companies House: automatic filing extensions come to an end

Companies House has confirmed that the automatic extensions granted by the Corporate Insolvency and Governance Act will come to an end for filing deadlines that fall after 5 April 2021. The Act granted automatic extensions for filing deadlines for accounts, confirmation statements, event-driven filings and mortgage charges between 27 June 2020 and 5 April 2021 in response to the COVID-19 pandemic. For accounts filing deadlines that fall after 5 April, companies can still apply for a three month extension.

UK direct tax developments

Senior Accounting Officer: update on penalties

HMRC updated their Senior Accounting Officer (SAO) guidance on 25 March 2021, responding to the decision in Castlelaw. In Castlelaw an SAO appealed a penalty where they had erroneously omitted a dormant entity from their SAO filings. HMRC’s updated guidance now confirms that HMRC may exercise discretion in relation to the assessment of penalties in such circumstances. The guidance notes that, in exercising discretion, HMRC will consider the company’s compliance record and HMRC risk assessment. 

Lapsed share options: permission to appeal to Supreme Court

HMRC have been given permission to appeal to the Supreme Court against the Court of Appeal’s judgment in HMRC v NCL Investments Limited & Another. The issue is the availability of a ‘general principles’ deduction for the accounting cost associated with employee equity awards in cases where a statutory deduction was not available. These deductions were claimed prior to an amendment to Part 12 of CTA 2009 in March 2013, which was introduced to prevent any further deductions being claimed on this basis. The cases involved deductions claimed under five different share plans, as well as the use of an Employee Benefit Trust to grant and settle the awards and recharge agreements for the subsidiaries to pay the IFRS2 cost to the parent. The Court of Appeal, the Upper Tribunal and the First-tier Tribunal all held that the accounting debit arising under IFRS2 was deductible as a trading expense of the employing companies. 

HMRC cryptoassets manual

HMRC have published their new manual on cryptoassets. The manual largely consists of material that has been previously published by HMRC, though the guidance has been expanded in places. In particular, HMRC set out more detail on their view of allowable costs and expenses for capital gains tax (CGT) and state that non-fungible tokens should not be pooled with other assets for CGT purposes. The guidance on the situs (location for tax and legal purposes) of assets for CGT purposes is largely consistent with the previous guidance. As before, HMRC comment that situs for inheritance tax purposes will follow the common law position and do not elaborate further. Deloitte’s client briefing note on the HMRC cryptoassets manual can be accessed here

Summary of responses – Disguised Remuneration

HMRC have published a summary of responses to the call for evidence on tackling disguised remuneration tax avoidance. In summary, HMRC will continue to monitor the situation but does not think specific legislative changes are necessary beyond the measures it is taking in respect of promoters of tax avoidance, helping taxpayers get offshore tax right and preventing and collecting international tax debt

UK indirect tax developments 

Revenue and Customs Brief 4(2021): VAT partial exemption and COVID-19

In Revenue and Customs Brief 4(2021), HMRC have set out their approach to a number of VAT partial exemption issues for businesses affected by COVID-19. The crisis has not necessarily impacted taxable and exempt supplies in the same way, creating the possibility that partial exemption special methods (PESMs) may temporarily not be fit for purpose, and may need adjusting. If HMRC are satisfied that proposed changes to a PESM are required because of COVID-19, then they will limit their enquiries into the proposed changes rather than necessarily reviewing the whole PESM (which can be a prolonged exercise). They confirm that COVID-19 represents an exceptional circumstance which can justify backdating changes to a PESM. Requests not to adjust partial exemption calculations for cancelled sales (which might distort recovery rates) will be considered sympathetically. Businesses using the standard partial exemption method are invited to consider whether an override will be more appropriate than a PESM.  

Wellcome Trust: 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 TaxScape.

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.

Balhousie: sale and leaseback does not trigger VAT self-supply charge – Supreme Court

Balhousie Holdings Limited had a new care home constructed, and financed its development through a sale and leaseback with a Real Estate Investment Trust. The construction qualified for zero-rating, but in 2019 the Court of Session ruled that Balhousie had disposed of its entire interest in the property through the sale (which immediately preceded the leaseback), and this triggered a self-supply charge that clawed back the zero-rating relief. The Supreme Court has now overturned that decision. The purpose of the self-supply charge was to encourage businesses like Balhousie to commit to building and operating care homes for at least ten years. In the Supreme Court’s judgment, the sale and leaseback occurred simultaneously and were indissolubly bound together, and in that context there was no point when Balhousie did not have an interest in the property. As Balhousie had not disposed of its entire interest, the self-supply charge did not arise. The majority of the Court found it unnecessary to apply the CJEU’s reasoning in Mydibel, which suggests that sale and leaseback transactions should in some situations be regarded as a means of finance rather than as two separate transactions for VAT purposes.

International developments 

Council of the EU adopts Directive on reporting rules for online platforms (DAC 7)

The Council of the EU has adopted DAC 7, the EU Directive which will introduce a new reporting requirement for digital platforms. From 1 January 2023, the Directive will extend the scope of the existing provisions on exchanges of tax information between EU Member States by requiring digital platforms to collect and report information on income realised by their sellers. The rules will apply in respect of platforms that allow sellers to be connected with customers for the provision of the sale of goods, the rental of immovable property (e.g. accommodation), the provision of personal services and the rental of transport. HM Treasury published a policy paper at the Spring Budget 2021, confirming that there will be a consultation this summer on the introduction in the UK of reporting rules for digital platforms, based on the OECD model rules. 

BEPS MLI: OECD publishes Arbitration Profiles and Article 35 Opinion

On 25 March 2021, the OECD published for the first time 'Arbitration Profiles' of 30 jurisdictions applying Part VI (Arbitration) of the Multilateral Instrument (MLI). The OECD also published an Opinion of the Conference of the Parties to the MLI in respect of the interpretation and application of Article 35 (Entry into Effect) of the MLI. The OECD's press release on both items is here

Other developments 

Deloitte/CBI webinar on Trade in Services

It has been almost 100 days since the end of the transition period, and the UK-EU Trade and Cooperation Agreement (TCA) means there are significant changes to the way UK businesses trade in services with the EU. On Monday 29 March Amanda Tickel (Deloitte’s Head of Tax Policy) joined John Foster (Director, Policy and Communications, CBI) and Peter Hogg (UK Cities Director, Arcadis) for a discussion on where next for trading in services between the UK and the EU. The webcast is available on the CBI’s YouTube channel

Scrutiny of International Treaties and other international agreements

The Commons Public Administration and Constitutional Affairs Select Committee is to conduct an inquiry into the scrutiny of international treaties and has issued a call for evidence. It is inviting evidence inter alia on what roles Parliament, and the House of Commons in particular, should have at different stages of the treaty making and implementation in relation to different types of treaties, and on what basis. Responses are invited by 7 June 2021.

Freeports selection decisions

HM Treasury and the Ministry for Housing, Communities and Local Government have published a note on the process and rationale for the selection of the eight successful Freeport locations in England announced at the Budget in March 2021. The eight successful bids were: East Midlands Airport, Felixstowe & Harwich (Freeport East), Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside, and Thames.

Dbriefs webcasts

The next Dbriefs webcast is on Wednesday 14th April 2021 at 12:00 BST / 13:00 CEST on the topic of SAP S/4HANA®: Trade Compliance Opportunities For Tax. During the webcast our panel of experts will discuss current global trade environment challenges, the impact on global trade / trade compliance organisations, and opportunities for global trade process centralisation, automation and management when moving to SAP S/4HANA®. For more information and to view past webcasts on demand visit