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 | 29/06/2021

Finance Bill 2021

Finance Bill progress and Royal Assent

The government tabled a number of amendments and new Clauses for the Report stage of the Finance Bill, all of which were passed on Monday 24 May. The Bill completed its stages in the Lords on Tuesday 8 June 2021. Issues covered in the Lords debate, which also considered the Lords Finance Bill Sub-Committee report New powers for HMRC: fair and proportionate? published on 19 December 2020, include:

  • The impact of measures in the Bill on tackling the promoters and enablers of tax avoidance.
  • Regulation of umbrella companies.
  • Removing safeguards relating to civil information powers.
  • The impact of the tax system on the environment.

The debate is here. Royal Assent was given on 10 June 2021.     

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. 

Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill

The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill has been published, together with explanatory notes. The press release explains that the Insolvency Service is to be given powers to investigate directors of companies that have been dissolved. The process will no longer be able to be used as a method of fraudulently avoiding repayment of government backed loans given to businesses to support them during the COVID-19 pandemic. Extension of the power to investigate also includes the relevant sanctions, such as disqualification from acting as a company director for up to 15 years. Directors of dissolved companies will also be prevented from setting up a near-identical business after the dissolution, potentially leaving customers and other creditors unpaid. The Bill will also fulfil a commitment to rule out business rates appeals on grounds of a material change of circumstances where these are related to COVID-19.   

Coronavirus Job Retention Scheme: updated HMRC guidance

HMRC have updated their guidance on the Coronavirus Job Retention Scheme (CJRS) to reflect that claims for furlough days in May 2021 must be made by 14 June 2021: 

UK direct tax developments

Discovery, deliberate inaccuracy: taxpayer wins in Supreme Court

The Supreme Court has dismissed HMRC's appeal in HMRC v Tooth on discovery and deliberate inaccuracy. HMRC purported to have made a discovery in relation to the taxpayer's participation in a failed employment loss scheme. His accountants used software, approved by HMRC, to file his return. It did not allow for an employment loss to be directly claimed, so this was done by using the partnership pages, with a dummy tax reference. The white space explained that an employment loss was being claimed, that a DOTAS number was expected, that the taxpayer knew the claim was not in accordance with HMRC’s views and that an enquiry was expected. HMRC opened the wrong sort of enquiry, as was subsequently made clear by the Supreme Court in Cotter. The Upper Tribunal held that, given the full explanation given, there had been no inaccuracy in the taxpayer’s return, let alone a 'deliberate' inaccuracy. Thus, no discovery assessment could be made outside the regular time limit. The Court of Appeal held that HMRC had not made a valid discovery assessment, though the majority of the Court of Appeal accepted HMRC's argument that there had been a deliberate inaccuracy issue. The Supreme Court held that there was no inaccuracy in the taxpayer's return and, even if there had been, it was not deliberate as the taxpayer did his best with an intractable online form. Accordingly, HMRC's appeal failed. However, it disagreed with the Court of Appeal on the discovery issue, holding that HMRC did make a qualifying discovery. The Supreme Court expressly commented on the taxpayer’s submissions that HMRC’s discovery had become ‘stale’ by virtue of the discovery being first made in 2009. The Court noted that the officer who issued the discovery assessment in 2014 was the relevant officer making the discovery. HMRC do not have ‘collective knowledge’: therefore the 2014 discovery was a newly made discovery by the relevant officer, regardless of previous discoveries made by other HMRC officers. The Court noted that taxpayers are afforded protections through the relevant time limits for discovery assessments and no further protections were required. Accordingly, the Supreme Court extinguished the concept of ‘staleness’ as established by the Upper Tribunal and Court of Appeal.  

HMRC publish new Trust Registration Service Manual (TRSM)

On 17 May 2021, HMRC published the Trust Registration Service Manual (TRSM). The main contents page is as follows: 

UK indirect tax developments 

National Insurance Contributions Bill

The National Insurance Contributions Bill has been published, together with explanatory notes. Also published were tax information and impact notes on: 

The House of Commons Library has published a research briefing on the Bill. 

VAT: HMRC guidance on the one stop shop

HMRC have issued guidance on the application of the EU’s VAT e-commerce package (which takes effect from 1 July 2021) insofar as it relates to Northern Ireland. The guidance does not therefore (unlike the European Commission’s guidance) address supplies of services, but does set out the new rules on distance sales, imports, and for online marketplaces facilitating such supplies. It acknowledges that businesses making distance sales over £8,818 annually that wish to use the UK’s One Stop Shop (OSS) will have to register for UK VAT (even if the annual value of their taxable supplies is below £85,000). Further guidance will be issued before 1 July on how to ensure that VAT will not be due automatically on domestic supplies in these circumstances. The guidance also states that the UK’s OSS or Import One Stop Shop (IOSS) registration portals are not expected to be available for use by 1 July, in which case further guidance will be issued.  

Plastic Packaging Tax: HMRC policy and guidance papers

HMRC have issued a policy paper titled Get your business ready for the Plastic Packaging Tax, and an accompanying guidance paper titled Further information for businesses, providing more details on the Plastic Packaging Tax (PPT). The tax, which will take effect from 1 April 2022, seeks to encourage the use of recycled rather than new plastic within plastic packaging, and it is hoped it will in turn stimulate increased levels of recycling and collection of plastic waste, diverting it away from landfill or incineration. It will apply to plastic packaging manufactured in, or imported into, the UK where the plastic used in its manufacture is less than 30% recycled. The rate of the tax will be £200 per metric tonne of plastic packaging. Businesses that manufacture or import ten or more tonnes of plastic packaging over a 12-month period will need to register and account for the tax, although record keeping requirements will extend to all businesses that manufacture or import plastic to some degree. The online service to register for PPT and pay any liabilities will be available on 1 April 2022 when the tax takes effect, and more detailed guidance will be published later in the year. 

VAT: calculating open market values: First-tier Tribunal

Jupiter Asset Management Group Ltd was the representative member of a VAT group (JAMG) that included JFM Plc, which made management charges to a VAT group represented by Jupiter Investment Management Group Ltd (JIMG). HMRC considered that the level of management charges was too low, directed JAMG to charge VAT by reference to an open market value, and assessed it for output tax. In a detailed decision, the First-tier Tribunal has considered that an arm’s length price (as defined for transfer pricing purposes) might frequently coincide with an open market value, but that it was relevant only to direct tax. An open market value for VAT purposes has to be calculated by reference either to a comparable transaction (in this case, there was none) or to the full cost of JAMG’s management services. The full cost included all the services on which JAMG had recovered input tax (which, by definition, were cost components of a supply by JAMG). It also included costs which were not subject to VAT, in particular the remuneration of Jupiter’s executive directors who were employed by JFM Plc even though in practice they were paid by JIMG. JAMG’s appeal was dismissed.  

VAT: amending historical claims: First-tier Tribunal

In 2009, Leicester City Council submitted a claim for VAT overpaid on sports and leisure facilities. The CJEU eventually confirmed the validity of such claims in 2017, by which time the council had submitted several catch-up claims for periods which might otherwise have fallen outside the four-year time limit. In 2018, it sought to amend its claims for 2006-14 (which were still being negotiated) on the basis that VAT on golf course fees and income from sports activities on council parks had been omitted. The First-tier Tribunal has ruled that this was a new claim, not an amendment to an existing claim. The original claims for ‘sports and leisure facilities’ might also include a claim for golf courses and sports on parks. However, the methodology used for the original claims had excluded this turnover. This satisfied the First-tier Tribunal that the claim had to be a new claim, which was subject to the four-year cap, and it dismissed the council’s appeal. 

Landlord not established for VAT by merely owning property: CJEU

Titanium Ltd, based in Jersey, owned two commercial properties in Austria which it leased to Austrian businesses. The lease was subject to VAT (as a land-related supply), but a disagreement arose over whether VAT should be accounted for by Titanium or by the lessees. The reverse charge potentially applies to supplies by non-established businesses, so if Titanium had a fixed establishment in Austria by virtue of owning the property then it should have charged VAT. However, Titanium did not employ any staff in Austria, and engaged a local property management company to deal with day-to-day operations. It retained control over any important decisions (agreeing leases, authorising repairs or improvements, and appointing the management company), but none of these required it to have a presence in Austria. The CJEU has ruled that the property on its own could not be a fixed establishment, as an establishment requires both human and technical resources. The only questions referred to the CJEU related to identifying an establishment, and it did not therefore provide any further guidance on the operation of the reverse charge in this case. 

International developments

Tax challenges arising from digitalisation: G7 reach agreement on Pillar One and Pillar Two

On 5 June 2021 the G7 finance ministers published a communiqué which confirms that high-level political agreement has been reached on global tax reform. Since 2017, the member countries of the G20/OECD Inclusive Framework on BEPS have been developing a ‘two pillar’ approach to address the tax challenges arising from the digitalisation of the economy. This led to the publication of two detailed ‘blueprints’ in October 2020 on potential rules for addressing nexus and profit allocation challenges (Pillar One) and for global minimum tax rules (Pillar Two). The proposals were updated and simplified by the US Biden Administration in April 2021 and this formed the basis for the G7 agreement. The communiqué sets out that the Pillar One rules should apply to the largest and most profitable multinationals, that it will reallocate at least 20% of residual profits over and above a 10% profit margin level to market countries, and that it will be coordinated with the removal of digital services taxes and similar measures. On Pillar Two, the G7 members agree that the global minimum effective tax rate should be at least 15%, applying on a country-by-country basis. For further details see our alert here.  

State aid: General Court reverses Commission in Amazon, upholds Commission in Engie

Further to the European Commission's conclusion in 2017 that Luxembourg granted undue tax benefits to Amazon, the EU's General Court has held that the Commission did not prove to the requisite legal standard that there was an undue reduction of the tax burden. Accordingly, the Commission's decision has been annulled.

The EU's General Court has upheld the European Commission's 2018 conclusion that tax rulings granted by the Luxembourg tax authorities to the GDF Suez group (now Engie) gave rise to a breach of State aid rules.

Commission Executive Vice-President Margrethe Vestager has commented ‘Both judgments confirm once more a key principle: while Member States have exclusive competence to determine their taxation laws, they must do so in respect of EU law, including State aid rules’. 

European Commission: communication on business taxation for the 21st century

The European Commission has published its Communication on Business Taxation for the 21st century. The communication builds on the roadmap set out in the tax Action Plan presented by the Commission in July 2020 as part of its tax package for fair and simple taxation. Among the short-term proposals is a newly adopted recommendation on the domestic treatment of losses. The Commission is recommending that Member States allow businesses to offset their 2020 and 2021 losses against the profits of at least the previous fiscal year, with a recommended limit of EUR 3 million per loss-making fiscal year. Other measures, to be put forward by the Commission in 2021 and 2022, include legislative proposals to address aggressive tax planning opportunities linked to the use of shell companies, to remove the bias between debt and equity funding, and to require large companies to publish effective tax rates. The Commission’s long-term plans include the revival of a proposal for a new framework for business taxation – now named the ‘Business in Europe: Framework for Income Taxation’ or ‘BEFIT’. There is further Deloitte comment here

EU reaches political agreement on public country-by-country reporting

Provisional political agreement has been reached between negotiators for the EU Members States and negotiators for the European Parliament on a proposed Directive for public country-by-country reporting in the EU. The provisional text would require multinationals with worldwide revenues of more than €750 million to disclose publicly, on a country-by-country basis, corporate income tax information relating to their operations in each of the 27 member states, as well as information for certain third countries on the EU list of non-cooperative jurisdictions. Both EU-parented groups and non-EU parented groups with EU subsidiaries or branches would have reporting obligations. The reporting would take place within 12 months from the date of the balance sheet of the financial year in question. The draft Directive (which has not yet been published) sets out the conditions under which a company may obtain a deferral of the disclosure of certain elements for a maximum of five years. EU Member States would have eighteen months to transpose the Directive into national law. The agreed text now goes back to the Parliament and Council for the formal approval and adoption of the Directive. This process is expected to be completed after the European Parliament’s summer recess. 

Other developments

Queen's Speech 2021

The Queen's Speech was delivered on 11 May 2021. It announced 24 new Bills, in addition to Bills carried over from the previous parliamentary session such as the Finance Bill. Background briefing notes have been published on the Bills announced. 

Office of Tax Simplification: Capital Gains Tax: second report

The Office of Tax Simplification (OTS) has published its second report on Capital Gains Tax (CGT) following the review of CGT requested by the Chancellor in July 2020. It covers a wide range of areas, including moving house, getting divorced, running a business and issues affecting land transactions. It also highlights concerns about the low level of public awareness of CGT, and the extent to which the administrative systems could do more to support taxpayers. Recommendations include: 

  • Integrating CGT into the Single Customer Account.
  • Extending the reporting and payment deadline for the UK property tax return.
  • Reviewing the practical operation of Private Residence Relief nominations.
  • Extending the operation of the rule whereby married couples / civil partners can transfer assets to each other without triggering an immediate CGT charge.
  • Reviewing the treatment of deferred proceeds when a business is sold.

Deloitte’s briefing note summarising key points from the OTS report is available here.   

Office of Tax Simplification: potential for moving the end of the tax year

The Office of Tax Simplification has published a document setting out the scope of a new high-level exploration of the benefits, costs and wider implications of changing the date of the end of the tax year for individuals. The OTS has initiated this work in the context of HMRC’s current call for evidence on reforming the tax administration framework. The review will focus on the implications of moving the tax year end date from 5 April to 31 March. The review will also consider potential alternative approaches to addressing practical issues connected with the UK’s tax year running to 5 April. In addition, the OTS will outline the main additional broader issues, costs and benefits that would need to be considered if the end of the tax year were moved to 31 December. 

Dbriefs webcasts

The next Dbriefs webcast is on Tuesday 15 June 2021 at 12:00 BST / 13:00 CEST on the topic of Embarking On A Xaas Journey: Equipping The Tax And Legal Team. During the webcast our panel of experts will discuss the shift in organisations moving towards the adoption of subscription models and the desire for more global, agile and scalable solutions as organisations increasingly transform their traditional sales model into cloud-based solution offerings. For more information and to view past webcasts on demand visit www2.deloitte.com/uk/en/pages/dbriefs-webcasts