Monthly Tax Update

Date of Autumn Budget confirmed and tax policy announcements

On 29 July 2024, the Chancellor of the Exchequer announced that the Autumn Budget will take place on Wednesday 30 October 2024. This first Budget of the new government will be presented alongside the latest economic and fiscal forecasts commissioned from the Office for Budget Responsibility (OBR). HM Treasury is inviting Budget representations from interested stakeholders until 10 September 2024.

Later on 29 July 2024, the Treasury published a written ministerial statement setting out the government’s next steps on a number of “priority tax commitments”. Announcements included:

• Pillar Two country-by-country reporting safe harbour: Draft legislation was published to amend the UK’s implementation of the Pillar Two transitional country-by-country reporting (CbC) safe harbour to include the OECD’s ‘anti-arbitrage’ rules. Model anti-arbitrage rules, to counter certain transaction-based potential tax avoidance mechanisms, were published by the OECD/G20 Inclusive Framework last December, and HM Treasury issued a statement in March 2024 announcing that that the UK would legislate for them in a future Finance Bill.
• Carried interest: A call for evidence has been launched, inviting views on the government’s plans to reform the tax treatment of carried interest.
• Private schools – VAT on fees and business rates: The government announced that, from 1 January 2025, education services and vocational training supplied by a private school or a “connected person” for consideration will be subject to VAT at the standard rate of 20%. The standard rate will also apply to boarding services that are “closely related” to such supplies. Fees paid on or after 29 July 2024 for education provided after 1 January 2025 will also be subject to VAT at the standard rate. Changes to remove the eligibility of private schools in England to business rates charitable rates relief are planned with effect from April 2025.
• Energy Profits Levy: The government intends to increase the rate of the Energy (Oil and Gas) Profits Levy by three percentage points to 38% from 1 November 2024 (bringing the headline rate of corporate tax on upstream oil and gas activities to 78%) and will extend the default lifetime of the Levy by one year to 31 March 2030. The government’s update also discusses planned changes to the Levy’s investment allowance rules.

Please see Deloitte TaxScape’s article for further details on the Treasury’s announcements which also included updates on the replacement of the tax regime for non-UK domiciled individuals and on the planned abolition of the furnished holiday letting tax regime.

HMRC publish annual report and accounts for 2023/24

On 30 July 2024, HMRC published their Annual Report and Accounts for the year to 31 March 2024. The section of the report on performance notes that HMRC exceeded their £40.5 billion target for ‘compliance yield’ for 2023/24 – collecting or protecting £41.8 billion of tax revenues that would otherwise have been lost through error, fraud and other forms of non-compliance. The section also acknowledges challenges in delivering customer services, and HMRC have published a separate report on how they are working to meet their customer service charter standards.

UK and Ecuador sign new double tax treaty

The governments of the UK and Ecuador signed a new double taxation convention and protocol on 6 August 2024, the first comprehensive double tax treaty between the two countries. The treaty will need to be ratified domestically by both countries, followed by notifications through diplomatic channels, after which it will enter into force in accordance with the timings set out in Article 29.

European Commission consulting on template and formats for EU public CbC reports

The European Commission has released a draft implementing regulation and annex to specify the format of public country-by-country (CbC) reports under the EU’s directive on public CbC reporting. The Commission has produced a draft common template and machine-readable electronic format for use by businesses reporting under the directive and is now inviting feedback. The consultation is open until 29 August 2024.

The public CbC directive requires multinationals with worldwide annual revenues of more than EUR 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 third countries on the EU list of non-cooperative jurisdictions. Data relating to operations in other non-EU countries would be combined in one aggregated ‘rest of world’ line. Both large EU-parented groups, and large non-EU parented groups with large or medium-sized EU subsidiaries or branches, will have reporting obligations, and the reporting will generally take place within 12 months from the balance sheet date. Member states are required to implement their public CbC rules with effect for financial years commencing on or after 22 June 2024 at the latest, although some member states have implemented rules with earlier effect including Romania (for financial years from 1 January 2023), Croatia (1 January 2024) and Sweden (31 May 2024).

CCLA: First-tier Tribunal considers VAT exemption for management of SIFs

Under the EU Principal VAT Directive (PVD), the management of Special Investment Funds (SIFs) is VAT exempt. In CCLA Investment Management Limited, the First-tier Tribunal (FTT) has considered whether the exemption applied to fund management services provided by CCLA Investment Management Limited. (The periods in question pre-dated the end of the Brexit implementation period and accordingly the PVD applied.) Investment funds constituted as ‘Undertakings for Collective Investment in Transferable Securities’ (UCITS) qualify as SIFs. A fund that is not a UCITS may benefit from the SIF exemption if it is equivalent to a UCITS, or sufficiently comparable so as to be in competition with a UCITS. In this respect, the EU VAT Committee (Working Paper 936) considered that funds are sufficiently comparable if, inter alia, they are subject to “specific state supervision”, and are subject to the same conditions of competition and appeal to the same investors who would invest in a UCITS.

The FTT has held that state supervision could be indirect, so being supervised via the fund manager was sufficient, but the supervision must be financial in nature; in the UK this would require regulation by the Financial Conduct Authority. The FTT considered each of the funds on a case-by-case basis, and held that in some cases, although not all, there was the requisite state supervision and the funds were subject to the same conditions of competition and appealed to the same investors who would use UCITS. Accordingly, the VAT exemption would apply to some of the management services under consideration.

Changes to HMRC interest rates following Bank of England rate change

On 1 August 2024, the Bank of England’s Monetary Policy Committee announced a decrease in the Bank Rate by 0.25 percentage points from 5.25% to 5%. HMRC have updated their interest rate tables to reflect the automatic 0.25 point decrease to interest rates for late tax payments and tax repayments as a result. The new HMRC rates have effect from 12 August 2024 for quarterly instalment payments of corporation tax, and from 20 August 2024 for most other tax payments.

EMEA Dbriefs webcasts

We have a number of Dbriefs webcasts over the next month including: UK Tax Focus - September (11 September 2024), and US election ready – what do owners of global mobility programmes need to think about? (19 September 2024). For more information, and to view recent webcasts on demand, please visit our Dbriefs website.