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 | 24/03/2021
Budget 3 March; Finance Bill 11 March
The Chancellor duly delivered his Budget on 3 March 2021. You can access our Budget coverage on our dedicated website. The Overview of Tax Legislation and Rates (OOTLAR) lists the tax policy measures announced at Budget 2021, shows when they will be legislated and includes links to the tax information and impact notes, the rates tables, consultations and other related material. HMRC have produced a new version of their consultation tracker to take account of the Budget announcements.
Finance Bill published
The Finance (No.2) Bill 2019-21 was published on 11 March 2021 (132 clauses, 33 schedules, 374 pages) together with explanatory notes. The Bill includes measures for which draft legislation was published on 21 July 2020 and 12 November 2020, as well as measures announced at the Budget. According to the press release accompanying the Bill, over half of the Bill has previously been published in draft for consultation.
There will be further tax policy announcements, including consultations, on 23 March. The House of Commons Library has published a briefing on Budget 2021 and the Finance (No.2) Bill.
Tax incentives for companies investing in assets: HMRC factsheet: Deloitte Special Bulletin
The HMRC guidance page on the 130% super-deduction for companies for qualifying main rate plant and machinery investments until 31 March 2023, which was announced as part of the Budget, has been updated. A three page super-deduction factsheet has been added. There were a number of Budget announcements regarding tax incentives for businesses investing in assets. See our Special Bulletin, which provides further information on the capital allowances announcements and points that businesses may wish to consider.
Tax policies and consultations: 23 March
On 23 March, the government published a number of further policy documents. These cover a wide range of topics with a focus on tax administration. They also include some new consultations on on Air Passenger Duty, paying income tax earlier and reporting cross border transactions.
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. 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 and Self-Employment Income Support Scheme extended and HMRC updated guidance
The Coronavirus Job Retention Scheme (CJRS) and the Self-Employment Income Support Scheme (SEISS) have been extended until the end of September. HMRC have updated their guidance on the CJRS:
Court of Appeal dismisses taxpayer’s consortium relief appeal; comments on procedure
In Eastern Power Networks plc and others v HMRC the Court of Appeal has upheld the decision of the Upper Tribunal in a case concerning an HMRC enquiry into the application of anti-avoidance legislation - s146B CTA 2010 - to a specific group structure and consortium relief /group relief claim. The effect of s146B, where it applies, is to reduce the amount of losses claimable by 50%. In this case, the consortium company and its shareholders made changes to the capital structure and the articles of the consortium company, which, in the absence of s146B, would have had the effect of increasing the amount of losses which could be surrendered by some of the shareholder companies without adversely affecting the levels of control. The Court held that the arrangements, specifically the introduction of a 75% voting threshold in the company's articles, met both the conditions in s146B(3)(a) and s146B(2)(b), so it was possible that s146B applied. HMRC could therefore continue their enquiries to determine whether the main purpose test was also satisfied.
Lady Justice Rose commented that the procedure in this case had required the Courts to apply the statutory provision in the absence of any clear findings of fact. The overall dispute remains unresolved even after the Court of Appeal’s judgment, despite eleven years having elapsed from the relevant events (and seven years from the start of HMRC's enquiries). It has been announced that Lady Justice Rose will become a Supreme Court Justice in April.
HMRC v Atholl House Productions: Upper Tribunal
HMRC have lost their appeal to the Upper Tribunal in the IR35 case against the radio presenter Kaye Adams’ personal service company, Atholl House Productions. The Upper Tribunal clearly thought that this was a finely balanced case. Although it found that mutuality of obligation existed and that there was sufficient control to be compatible with an employment, these factors alone were not conclusive. The Upper Tribunal found that because there were significant factors pointing to Ms Adams being in business on her own account, the hypothetical contract between her and BBC Radio Scotland was one of self-employment.
Uber v Aslam: Supreme Court
The UK Supreme Court has issued its decision in the employment law case of Uber v Aslam. The Supreme Court held that Uber drivers had ‘worker’ status and were therefore entitled to holiday pay and the National Minimum Wage. In this respect, the judgement also clarified that working time was not limited to periods when they were actually driving passengers, but included any period when the driver was logged into the Uber app within the territory in which the driver was licensed to operate and was ready and willing to accept trips. The decision could have wide ranging implications for other gig economy businesses. Following the Supreme Court judgment in Uber, the House of Commons Library has published an insight which explains ‘employment status’ and explores what the judgement means and what might happen next.
Additionally, Lord Forsyth of Drumlean, Chairman of the Lords Economic Affairs Committee, has written to Financial Secretary to the Treasury Jesse Norman on the topic. It asks Mr Norman what progress has been made on implementing the recommendations of the Taylor Review on employment status (for both tax and employment purposes) since April 2020. It also asks what the government’s assessment of the impact of the Supreme Court ruling is and what action it proposes to take in response.
Jersey: economic substance rules for partnerships from 1 July
The government of Jersey has published a consultation on extending the scope of Jersey’s economic substance regime to apply to partnerships in addition to Jersey tax resident companies. This is necessary in order to fully deliver on commitments made to the EU Code of Conduct Group in 2018. In-scope partnerships are expected to be those that are managed and controlled in Jersey, which could include certain foreign partnerships, and the rules could also apply to Jersey limited liability partnerships (LLCs). Jersey officials are in discussions with the EU Commission on various possible exemptions, e.g. for fund vehicles. Legislation is anticipated by 30 June and the extended scope is likely to take effect from 1 July 2021, with a maximum six-month extension for existing partnerships. The consultation period will run until 1 March 2021. There is an alert with more details here. Guernsey and the Isle of Man have made similar political commitments to the EU, and we understand that Guernsey has announced its intention to legislate for similar rules by 30 June but that consultation is with interested industry groups only.
Stamp Duty Land Tax: Non-UK resident surcharge
The Stamp Duty Land Tax (SDLT) surcharge on non-UK residents purchasing residential property in England and Northern Ireland will come into effect from 1 April 2021. The surcharge rate of 2% will apply to the whole of the purchase price, adding the additional 2% to each of the existing residential SDLT rates, and will also apply to increase the rate of SDLT paid by reference to the rent payable under a lease of residential property of more than 7 years, as well as on any premium. The surcharge may also apply to acquisitions by non-resident persons other than individuals, such as non-resident companies, partnerships and trusts, and UK resident entities where relevant owners, partners or beneficiaries are non-UK resident. For further details see here.
Fifth Money Laundering Directive – Trust registration
The EU’s Fifth Money Laundering Directive (5MLD) is now in force and the UK has enacted it into UK law. While certain trusts will need to register with HMRC and/or update information held by HMRC by 31 January 2022, HMRC have announced that the deadlines for non-taxable trusts to register will be amended to be approximately 12 months after HMRC’s systems have been updated to enable non-taxable trusts to do so. There is a Deloitte briefing document with more details here.
EU fiscal representation for UK businesses
The UK-EU Trade and Cooperation Agreement (TCA) includes a protocol on administrative cooperation and combating fraud in the field of VAT, as well as mutual assistance for the recovery of claims relating to taxes and duties. As a result, businesses established in the UK should, in principle, be able to register for VAT in EU Member States without having to appoint a fiscal representative. However, the European Commission is reviewing this and is expected to confirm whether fiscal representation is required in April. Until then, the requirement for UK taxpayers to appoint a fiscal representative continues to be determined by individual EU Member States. Some (including Poland and Hungary) currently require UK businesses to appoint a fiscal representative, others do not, and some Member States have not yet clarified their position. The position is continuing to evolve, and UK businesses with VAT registration obligations around the EU will need to monitor developments and appoint fiscal representatives where appropriate.
Westow Cricket Club: zero-rating certificates and new pavilions: Upper Tribunal
Before Westow Cricket Club issued a zero-rating certificate for its new pavilion, it contacted HMRC who referred to Notice 708 and told the club that “providing the new pavilion meets the conditions set out, and it appears to do so, the construction work will be zero-rated…”. The club is a Community Amateur Sports Club (CASC) and not a registered charity, and the question of whether CASCs qualify for zero-rating remains uncertain. After the pavilion was completed, HMRC (on the basis that CASCs do not qualify for relief) imposed a 100% penalty on the club for incorrect certification. Initially, the First-tier Tribunal ruled that the club did not have a reasonable excuse for issuing the certificate, as HMRC had qualified their response and had only expressly addressed the use of the pavilion, not the club’s charitable status. The Upper Tribunal has now reversed that decision. It ruled that the First-tier Tribunal had taken too narrow an approach in focusing on whether HMRC’s response was definitive, and should not have placed so much emphasis on whether a reasonable excuse that existed at the time of HMRC’s letter still held when the certificate was issued 12 months later. The club’s treasurer honestly believed that he could issue a certificate even after reading Notice 708 and it was objectively reasonable for him to have done so. The Upper Tribunal therefore allowed the club’s appeal, and remade the decision to discharge the penalty.
VAT on charges from VAT group to branch: CJEU
In the absence of VAT groups, financial services businesses can recharge costs cross-border between head offices and branches without creating a VAT cost – the branch is not economically independent of its head office, and has no separate identity for VAT purposes. In 2014, the CJEU ruled that VAT was due if the branch joined a VAT group with other local companies, as the branch became assimilated with those group companies and could no longer be seen as indistinguishable from the head office (Skandia). In Danske Bank, the CJEU has now ruled that the reverse is also true: where a head office which was part of a Danish VAT group provided IT support to its Swedish branch (which was registered for VAT on its own), then the head office and branch should be considered as independent from each other for VAT purposes. The Swedish branch should account for VAT on IT support provided by the head office under the reverse charge in Sweden. Please see here for further details, and analysis of comments from the CJEU about whether VAT grouping applies to establishments or legal entities.
JCM Europe: classification of bank note validators: CJEU
When you put a bank note into a self-service checkout, a machine such as an iPRO-RC validates the note by measuring it, shining light through it, and assessing its magnetic properties, before retaining the note to be returned as change in a subsequent transaction, or dropping it into a secure cash box. A difference in approach arose between Germany and the UK as to whether the machine was an office machine or an instrument for checking or measuring, which resulted in Regulation 2016/1760 specifying that it was an office machine. The CJEU has now ruled that the machine’s principal function was not purely to validate bank notes, but to allow the checkout to receive cash payments. Other machines which handle cash (such as ATMs) are specifically classified as office machines, which shows the broad scope of that classification compared to measuring instruments, which refer to high-precision checking devices used in fields like medicine or astronomy. The classification of the iPRO-RC as an office machine fell within the Commission’s broad discretion over tariff classification.
NAO report on environmental tax measures
The National Audit Office (NAO) has published a report on environmental tax measures. The press release notes that HM Treasury and HMRC administer four environmental taxes: Climate Change Levy; Carbon Price Support; Landfill Tax; and Aggregates Levy. The government plans to introduce a fifth – the Plastic Packaging Tax – from April 2022. The NAO finds that, when designing environmental taxes, HM Treasury and HMRC rarely specify how they will measure the environmental impact so as to allow Parliament to assess whether taxes are meeting their objectives. More widely, HMRC have not identified the tax reliefs which could impact on the government's environmental goals. The NAO recommends that HMRC and HM Treasury should work closely with other departments to ensure that existing and future tax measures are compatible with the environmental strategies being developed across government. It suggests that the Treasury's net zero review is an important first step in this process.
New advisory fuel rates from 1 March 2021
HMRC have announced new advisory fuel rates from 1 March 2021. The previous rates from 1 December 2020 can be used for up to one month from the date the new rates apply. Compared to the previous rates, some of the rates have increased by 1 pence.
Treasury Committee: Tax After Coronavirus Report
The Commons Treasury Committee has published its report Tax after coronavirus. It was described as ‘the most substantial report on tax reform ever produced by a parliamentary committee’ by the CIOT's Director of Public Policy John Cullinane, and CIOT President Peter Rayney called it ‘the most substantial report on tax reform in a generation.’ The conclusions, summarised in the Committee’s press release, include:
The next Dbriefs webcast is on Tuesday 30th March 2021 at 12:00 GMT / 13:00 CET on the topic of SAP Tax Compliance – Demonstration. During the webcast our panel of experts will provide a fuller demonstration of the SAP Tax Compliance solution and explain how tax functions can benefit from the latest SAP S/4HANA developments, including the results overview and dashboard and compliance checks options. For more information and to view past webcasts on demand visit www2.deloitte.com/uk/en/pages/dbriefs-webcasts.