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 | 30/01/2024
Budget to be held on 6 March 2024
The Chancellor of the Exchequer has announced that the next UK Budget – Spring Budget 2024 – will be held on Wednesday 6 March 2024. The Spring Budget will be accompanied by the latest forecasts from the Office for Budget Responsibility for the UK’s economy.
Finance Bill update
The government has announced that the remaining Commons stages (Report Stage and Third Reading) of the Finance Bill have been provisionally scheduled for Monday 4 February 2024. Any Report Stage amendments proposed by MPs will be added to the amendment papers published here in due course. As at the time of writing, no amendments in the name of the government have been tabled.
Government publishes simplification update
On 16 January 2024, HMRC published a ‘simplification update’, setting out a package of measures intended to support the government’s “ambition to simplify and modernise the tax system” and “to make the tax system simpler and fairer.” The Financial Secretary to the Treasury (Nigel Huddleston MP) issued a ministerial statement summarising the update, which includes changes across five different areas:
HMRC announce cessation of liquidation tax clearances
HMRC have announced a change of policy on clearances for companies undergoing a members’ voluntary liquidation (MVL). The new insolvency guidance notes that, historically, HMRC have provided practitioners with written assurances that the tax liabilities of a company in MVL, including tax liabilities arising during the MVL, had been dealt with. HMRC have now ceased this practice, and will instead expect insolvency practitioners to rely on their professional judgement when establishing an accurate tax position. Requests for tax clearances already received will not be responded to, and future requests will not be actioned.
HMRC guidance on availability of capital allowances for partnerships with corporate partners
HMRC have added additional guidance to two pages in their Capital Allowances Manual (CA11145 and CA23163) to clarify that partnerships with corporate partners are able to claim certain first year capital allowances that are only available to companies within the charge to corporation tax, including the super-deduction (prior to 31 March 2023) and full expensing (since 1 April 2023). The guidance confirms that this also applies to mixed partnerships (i.e. where some partners are within the charge to corporation tax and others are within the charge to income tax instead) such that those partners who are within the charge to corporation tax can obtain the benefit of the super-deduction or full expensing. A similar confirmation was made by the Financial Secretary to the Treasury earlier this month in a debate on the current Finance Bill.
Court of Appeal allows HMRC appeal on the meaning of “more than incidental”
The Court of Appeal has unanimously allowed HMRC’s appeal in the corporation tax case Dolphin Drilling Limited. The judgment concerns the ‘hire cap’ rules within Finance Act 2014, applicable to contractors in the offshore oil industry. The dispute centred on whether it was “reasonable to suppose” that the use of a leased converted oil rig (the Borgsten) for accommodation purposes was “unlikely to be more than incidental to another use, or other uses” to which the Borgsten was likely to be put. The Court of Appeal agreed with HMRC that the First-tier Tribunal had misdirected itself when analysing the statutory test, by focussing on whether the accommodation use was in some way lesser than other uses. Reflecting the ordinary language, Lord Justice Peter Jackson considered that for a use to be “incidental to” another use, it must also arise out of that other use (or be similarly connected). Applying the test to the facts, the Court of Appeal found that, whilst the accommodation use may have been a “secondary” use of the Borgsten, it was still a significant and independent use and not “incidental to” its other uses, and thus allowed the appeal.
UK CBAM to be introduced by 2027
In March 2023, the government published a consultation on addressing carbon leakage to support decarbonisation, seeking views on “potential policy measures to mitigate carbon leakage risk in the future and ensure UK industry has the optimal policy environment to decarbonise”. Potential policy measures included the introduction of a UK carbon border adjustment mechanism (CBAM). The government has now published a summary of consultation responses and government response, and has announced that it will implement a CBAM by 2027. Certain goods “imported into the UK from countries with a lower or no carbon price will have to pay a levy by 2027, ensuring products from overseas face a comparable carbon price to those produced in the UK”. The CBAM would apply to certain carbon-intensive goods in the following sectors: iron, steel, aluminium, fertiliser, hydrogen, ceramics, glass, and cement, with the importer of the goods responsible for meeting CBAM obligations. There will be further consultation on the design and delivery of the CBAM in 2024. The UK CBAM will interact with the UK emissions trading scheme (ETS), and consultations on proposed changes to the UK ETS have also been recently launched.
Walkers Snack Foods Ltd: whether zero-rating applies to Sensations Poppadoms – FTT
Walkers’ Sensations Poppadoms are made of potato granules (18%), potato starch (18%), and modified potato starch (4%). They also contain gram flour (14%) and rice flour (14%). They are not potato crisps (which are excepted from the zero-rating), but they are subject to VAT if they are “similar products made from the potato, or from potato flour, or from potato starch”. The First-tier Tribunal has ruled that potato granules were a form of potato (cooked and dried), and that when combining all the potato ingredients there was sufficient potato content for the Poppadoms potentially to be subject to VAT. The FTT then considered that Poppadoms were marketed like crisps, would be found in the snack food aisle next to crisps, would be eaten like crisps, and had a similar texture and ingredients to crisps. Applying a multifactorial assessment, the FTT concluded that they were similar to crisps even though they might be called ‘poppadoms’ and despite a market survey produced by Walkers (which the FTT concluded was not particularly helpful). Walkers initially put forward an alternative argument that Poppadoms are designed for dipping and therefore require “further preparation”, and so would qualify for zero-rating. However, Walkers’ marketing material, including packaging, suggested that no preparation was necessary. Accordingly, Walkers did not rely on this argument at the hearing. Sensations Poppadoms are therefore subject to VAT.
Bollinway Properties Limited: repayment supplement following assignment of input tax credit – UT
In 2018, Acepark Ltd bought Toys “R” Us Properties Ltd (TRUP) and transferred its properties to a new company, Bollinway Properties Ltd, for £355m. Bollinway included an input tax credit of £71m in its 10/18 VAT return which it filed on 2 November 2018, and suggested to HMRC that this should be offset against TRUP’s corresponding output tax liability. HMRC requested a full set of backing documents, and were provided with various invoices, option agreements, and notices. However, Bollinway did not send copies of the property transfer forms (TR1) until 18 December 2018, whereupon HMRC promptly offset the input tax as requested. The Upper Tribunal considered that the TR1s were important documents as they proved that the transfers of the properties had in fact taken place, although the VAT invoices might have established the time of supply. In its judgment, especially given the high barrier to interfering with the First-tier Tribunal’s findings of fact, the FTT had been entitled to conclude that TR1s should have been provided as part of the full set of backing documents, and HMRC had been entitled to wait for them before processing Bollinway’s repayment. Consequently, HMRC had not delayed the repayment for over 30 days, and Bollinway was not entitled to repayment supplement (which applied for the period in question) of £3.5m.
HMRC ‘one-to-many’ campaign – payment processing providers
The Association of Taxation Technicians (ATT) has reported that, as part of a ‘One to Many’ campaign, “HMRC are writing to businesses which use Payment Processing Providers (PPPs), asking them to ensure they correctly account for amounts received and fees charged in respect of these services, and to correct any tax compliance errors identified”. The ATT reports that the intention is “to help businesses understand that PPPs may deduct their fees in different ways, and to ensure their financial reporting systems report the correct amounts for VAT and either Corporation Tax or Income Tax”. The ATT has shared template versions of the HMRC letters for small, mid-sized, and large businesses.
Movement of goods into the UK from Ireland and other EU member states
As set out in the final version of the Government’s Border Target Operating Model, published in August 2023, from 31 January 2024, goods will face full customs controls when moved directly from Ireland via Irish ports to Great Britain. The Taxation (Cross-border Trade) (Miscellaneous Amendments) Regulations 2024 implement this measure. Most ‘qualifying Northern Ireland goods’ (essentially goods in free circulation) moving from Northern Ireland to Great Britain through Irish ports will not be subject to import customs processes. Also from 31 January 2024, health certification will be introduced for imports from the EU of medium-risk animal products, plants, and plant products, and high-risk food and feed of non-animal origin.
OECD publishes further Pillar Two global minimum tax rules guidance
On 18 December 2023, the G20/OECD Inclusive Framework published a third set of administrative guidance on the implementation of the Pillar Two global minimum tax rules to further clarify their interpretation and operation. The rules are intended to ensure that large multinational groups pay corporate income taxes at a minimum level of 15% in every country in which they operate. For further details, please see our alert.
EMEA Dbriefs webcasts
The next EMEA Dbriefs tax webcast is on Wednesday 7 February 2024 at 12.00 GMT/13.00 CET. In UK Tax Update - February hosted by Tim Waterhouse, with presenters Anne-Marie Davidson and Chris Cherrill, our panel of experts will discuss recent changes to UK taxation; international tax news and developments, as well as best practices and practical insights.