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 | 16/07/2021

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Finance Bill 2021-22

Finance Bill 2021-22 will be published on Tuesday 20 July

Financial Secretary to the Treasury Jesse Norman has made the following Written Ministerial Statement Finance Bill 2021-22 L-day update

“The Government will introduce the Finance Bill following the next Budget. In line with the approach to tax policy making set out in the Government's documents ‘Tax Policy Making: a new approach', published in 2010, and ‘The new Budget timetable and the tax policy making process', published in 2017, the Government is committed, where possible, to publishing most tax legislation in draft for technical consultation before the legislation is laid before Parliament.

The Government will publish draft clauses for the next Finance Bill, which will largely cover pre-announced policy changes, on Tuesday 20 July along with accompanying explanatory notes, tax information and impact notes, responses to consultations and other supporting documents. All publications will be available on the GOV.UK website.”

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 at our Deloitte global COVID-19 webpage. You can also sign up to our Deloitte Tax Atlas COVID-19 Tax and Fiscal Measures microsite, which provides a high-level summary of tax and fiscal coronavirus measures that have been announced by governments. 

Coronavirus Job Retention Scheme: updated HMRC guidanc

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

Self-Employment Income Support Scheme fifth grant: Treasury Direction; HMRC guidance 

The Treasury Direction for the fifth grant available under the Self-Employment Income Support Scheme (SEISS) has been published. This sets out the legal framework for the grant. HMRC guidance has been published/updated as follows:

The fifth grant mostly works the same way as the fourth grant, with one key difference. There are now two alternative levels of grant, 80% of three months' average profits with a cap of £7,500 (as before) or 30% of three months' average profits, with a cap of £2,850. The average profits calculation and qualification criteria are identical to the fourth grant. Traders only qualify for the higher grant if one of the following conditions is met: (1) they traded in 2019/20 but not in the preceding three tax years; (2) the only trading profits in 2018/19 and 2019/20 are from Lloyd's underwriting; or (3) the person meets the financial impact declaration test, which determines whether there has been a 30% drop in turnover. 

UK direct tax developments

HMRC updated guidance: claim relief from Corporation Tax trading losses

HMRC have updated their guidance Work out and claim relief from Corporation Tax trading losses. A new section has been added concerning the temporary extension to carry back of trade losses. The guidance covers certain administrative requirements in how claims can be made and distinguishes between de-minimis and non de-minimis amounts. 

Supreme Court upholds quashing of follower notice/accelerated payment notice

The Supreme Court has dismissed HMRC's appeal against the Court of Appeal's decision in R on the application of Haworth v HMRC. The issue is whether HMRC's issuing of a follower notice, and a subsequent accelerated payment notice (APN), was lawful. The background relates to 'Round the World' (RTW) tax arrangements, which typically involved transferring a trust, temporarily, to another jurisdiction such as Mauritius and taking advantage of the UK/Mauritius treaty. In 2010, HMRC were successful in an RTW case in the Court of Appeal - Smallwood v HMRC. Following the Smallwood case, HMRC's solicitor's office circulated internal advice on the factors which it considered would, if present in similar cases, lead to similar results. The High Court held that HMRC's actions complied with the legal framework on follower notices, and the notices were valid. The Court of Appeal held that, to give a follower notice, HMRC must be of the opinion that the principles or reasoning in the ruling in question would deny the relevant advantage, not merely that they would be more likely than not to do so. The Supreme Court has upheld the Court of Appeal’s judgment. The use of the word would indicates that HMRC must form the opinion that there is 'no scope for a reasonable person to disagree that the earlier ruling denies the taxpayer the advantage.... An opinion merely that is likely to do so is not sufficient.' The Supreme Court also held inter alia that HMRC had misdirected themselves in their analysis of Smallwood. 

Upper Tribunal dismisses taxpayer's appeal in IR35 case

The Upper Tribunal has dismissed the taxpayer's appeal in the IR35 case Northern Light Solutions Ltd v HMRC. The First-tier Tribunal considered the length of time over which arrangements had been put in place to provide services by the 'worker', Mr Lee, and the way in which the contracts worked and concluded that any hypothetical contract would have been of employment.
The First-tier Tribunal held that:

  • There was a mutuality of obligation between the parties but only within a number of separate contracts and not in an overarching agreement. However, with few gaps Mr Lee worked for Nationwide, the engager, for seven years full-time in substantially the same project management role.
  • During the course of a contract Nationwide as the engager had the right to direct where Mr Lee worked and to require him to work a professional day. It did not generally exercise that right and allowed Mr Lee a considerable degree of operational and personal autonomy but nevertheless had control over him, and monitored the progress of his work, as it needed to as a highly regulated business.
  • Mr Lee could not be moved to a different project without his consent.
  • Aside from the risk of not being engaged on a new contract (which happened rarely), Mr Lee was not subject to any financial risk.
  • There was no realistic possibility of Mr Lee providing a substitute to do his role.

The Upper Tribunal held that the First-tier Tribunal was justified in reaching the conclusions it did on control, on mutuality of obligation and on substitution and dismissed the appeal. 

UK indirect tax developments 

National Insurance Contributions Bill

The Public Bill Committee stage of the National Insurance Contributions Bill took place on Tuesday 22 June 2021. No amendments were made. The debate is here. The Bill will introduce:

  • Zero-rate of secondary Class 1 National Insurance contributions (NICs) for Freeport employees;
  • Zero-rate of secondary Class 1 NICs for armed forces veterans;
  • Exemption for COVID-19 Test and Trace Support Payments for Class 4 and Class 2 NICs, which are paid by the self-employed;
  • Provisions allowing changes to the Disclosure of Tax Avoidance Schemes (DOTAS) regime as it applies to NICs avoidance schemes.

The Bill now moves to its report stage in the Commons. No date has yet been set for the report stage. The Chartered Institute of Taxation (CIOT) has submitted written evidence on the Bill. The CIOT comments, inter alia, that it is problematic that the zero-rate of secondary NICs for Freeport employees applies only to new employees commencing employment from 6 April 2022, when it is expected that UK Freeports will start operating in 2021. The CIOT suggests that Freeport businesses will wish to take on new employees at that point rather than waiting until April 2022 but will have a fiscal incentive not to do so. 

Business Rates revaluations: consultation

The government has launched a consultation on making business rates revaluations more frequent. Under the proposals, revaluations of non-domestic properties would take place every three years instead of the current five. The consultation is part of the fundamental review of business rates which will conclude in the autumn. Responses should be submitted by 24 August 2021 using the survey link here. 

Revenue and Customs Brief 10(2021): repayment of VAT to overseas businesses not established in the EU

Overseas businesses that incur VAT in the UK for business purposes can reclaim the VAT using the overseas VAT refund scheme. To obtain VAT refunds for the year 1 July 2019 to 30 June 2020, businesses established outside the UK and EU were required to submit their application for refunds together with a certificate of status by 31 December 2020. HMRC previously granted a six month extension to submit the certificate. They are aware that some businesses are still experiencing difficulties obtaining the required certificate from their official issuing authorities due to measures taken in response to COVID-19. Revenue and Customs Brief 10(2021) confirms that HMRC will allow businesses a further six months (until 31 December 2021) to submit a valid certificate of status. 

HMRC trade tariff tool for GB to NI trade

The latest version of HMRC’s guidance Check if you can bring your goods into Northern Ireland from Great Britain without paying duty includes a new Trade Tariff tool – a decision engine that has been devised to assist businesses understand the customs consequences of moving goods from Great Britain to Northern Ireland. Under the terms of the Northern Ireland Protocol, the indirect tax position of Great Britain to Northern Ireland trade, notably the customs duty position, is a complicated affair: requiring businesses to consider, amongst other things, the origin of the goods, the applicable rate of UK and EU customs duty, and whether the goods will be subject to commercial processing or “at risk” of being diverted into the EU single market. Based on the information given, this tool gives businesses an indication as to the possible options available, and highlights issues which may merit further consideration. 

EU e-commerce VAT package live from 1 July – HMRC guidance

The new rules for EU e-commerce transactions came into effect from 1 July, which will affect any business that sells to consumers (B2C) in the EU. The existing One Stop Shop (OSS), which allows businesses to account for VAT in different EU Member States via one VAT return has been extended to intra-EU cross-border B2C sales of goods and other services. Following the abolition of low value consignment relief, an Import OSS (IOSS) allows businesses that supply low-value imported goods to deal with EU VAT obligations via a single VAT return. There are also new rules affecting supplies made via online marketplaces. In response, HMRC have issued more guidance. Check how to report and pay VAT on distance sales of goods from Northern Ireland to the EU confirms that businesses who sell goods over £8,818 annually from NI to EU consumers will need to register and account for VAT in the EU (either by registering in the EU or via the OSS). If a business registers for UK VAT so as to use the OSS, it will not need to account for VAT on UK domestic sales until it exceeds the normal VAT registration threshold. Tell HMRC you’re registered for the VAT Import One Stop Shop in the EU explains that if a business sells low value goods (not exceeding £135) into NI and is registered for the IOSS in the EU, it must tell HMRC its IOSS registration number. If the business is UK VAT registered it must account for VAT on eligible sales of low value goods into NI on its IOSS return, with no import VAT being accounted for when the goods enter NI. HMRC will publish further guidance on the UK’s IOSS scheme soon. 

International developments 

OECD Inclusive Framework reaches political agreement on taxing the digitalised economy and a global minimum rate

Following a meeting of the Inclusive Framework, the OECD has announced that 130 jurisdiction (now 132 jurisdictions) have joined a Statement regarding agreement on the key components of changes to the international tax framework. The two-pillar approach, planned to apply from 2023, will include rules for nexus and profit allocation to market countries (Pillar One) and a global minimum level of tax (Pillar Two). For further details, see our alert. 

OECD model digital platform reporting rules: sale of goods and transportation rental

The OECD has published Model Reporting Rules for Digital Platforms: International Exchange Framework and Optional Module for Sale of Goods. This follows on from the Model Rules, approved by the OECD/G20 Inclusive Framework of BEPS (the Inclusive Framework) in June 2020. The original model rules provide for a new global tax reporting framework, under which digital platforms would be required to collect information on the income realised by sellers offering accommodation, transport, and other personal services through their platforms and report the information to tax authorities. The new document consists of a new module containing amendments to the model rules and interpretive guidance, and a new multilateral agreement to support the international exchange of information collected. The amendments in the module reflect the interest of a number of countries to permit an extension of the scope to cover income realised by sellers from the sale of goods and from the renting out of vehicles. The multilateral agreement will support the annual automatic exchange of information collected under the rules between the tax authorities. For further details, see the Deloitte tax@hand article here.

Jersey’s economic substance regime extended to partnerships

The draft Taxation (Partnerships – Economic Substance) (Jersey) Law 2021, which extends Jersey’s economic substance rules to partnerships in line with commitments given to the EU Code of Conduct Group, was lodged with the Jersey States Assembly on 18 May 2021. It was passed without amendment on 29 June 2021 and came into force for financial periods commencing on or after 1 July 2021 for new partnerships formed on or after this date. For existing partnerships (i.e. those in existence prior to 1 July 2021) it will take effect for financial periods commencing on or after 1 January 2022. The legislation broadly mirrors Jersey’s existing economic substance legislation for companies. Where a ‘resident partnership’ has gross income in relation to relevant activity carried on by or through that partnership, it will be required to meet the economic substance test. ‘Relevant activity’ definitions largely follow those set out in the existing company economic substance rules. As with companies, persistent failure could lead to the partnership being wound up or dissolved. For further details see the Deloitte tax@hand article here. 

Dbriefs webcasts

The next Dbriefs webcast is on Monday 19 July 2021 at 14:00 BST / 15:00 CEST on the topic of G20/OECD The Digitalised Economy – Political Agreement On Taxation Of Digital Economy (Pillar One) And Global Minimum Rate (Pillar Two). During the webcast our panel of experts will discuss the joint statement published by 132 members of the G20/OECD Inclusive Framework on 1 July 2021 agreeing the key components of the allocation of taxing rights between countries (‘Pillar One’) and the introduction of a global minimum tax (‘Pillar Two’). For more information and to view past webcasts on demand visit www2.deloitte.com/uk/en/pages/dbriefs-webcasts