16/02/2024
Spring Budget to be held on 6 March 2024
A reminder that the Chancellor of the Exchequer, Jeremy Hunt, will deliver the government’s Spring Budget 2024 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. Please visit our Spring Budget page in the run up to the Budget for our coverage of key tax announcements.
There will be an EMEA Dbriefs webcast on Thursday 7 March 2024 at 12.00 GMT/13.00 CET, during which our panel of speakers will analyse the Spring Budget’s tax announcements.
Finance Bill progress
The Finance Bill, to enact those measures in Autumn Statement documents listed by HM Treasury as included in ‘Autumn Finance Bill 2023’, has completed its House of Commons stages. A small number of government amendments were approved by MPs during its report stage. HMRC published explanatory notes for each group of amendments, which concerned the electricity generator levy, research and development reliefs, and creative sector reliefs (see here for more details). A reprinted version of the Finance Bill, reflecting these changes, has been published.
The Bill has now moved to the House of Lords, which does not make changes to Finance Bills. Remaining Lords stages are scheduled for next week, after which the Bill will be sent for Royal Assent.
Validity of dividend double tax relief claims following FII GLO, Prudential etc.
A number of judgments in recent years, such as the Supreme Court’s judgment in July 2021 in FII Group Litigation, clarified the principles in applying EU law to, and conforming interpretations of, the UK’s double tax relief rules to certain dividends received by UK companies prior to July 2009. In December 2021, the First-tier Tribunal (FTT) gave a decision (the Post Prudential Closure Notice Applications/Appeals group litigation case) dealing, inter alia, with follow-up questions of what procedures must have been followed by affected taxpayers, in particular what constituted a valid claim for relief. A wide range of questions was posed to the FTT, reflecting the variety of circumstances of the test claimants, with the taxpayers winning on most points.
Both parties appealed to the Upper Tribunal (UT), and it has now handed down a decision that is largely in favour of HMRC, overturning many of the points the FTT had decided in favour of the taxpayers. The UT, however, has agreed with the FTT in respect of an issue (‘Issue 3’), concerning returns containing claims made by taxpayers for double tax relief for withholding tax only, which HMRC subsequently opened an enquiry into. The UT agreed with the FTT that, in those circumstances, once HMRC’s enquiry into a return is complete, HMRC must also reflect in the closure notices any additional entitlement to double tax relief for underlying tax by way of credit at the ‘foreign nominal rate’ (‘FNR’ – the rate established by the courts for the appropriate level of double tax relief under EU law). The decision will be of particular interest to companies with outstanding claims in connection with the various cases (including FII GLO, CFC/Dividend GLO, BAT or Prudential) and section 79 TIOPA 2010, section 806(2) ICTA 1988, or Paragraph 51 Schedule 18 FA 1998 claims in respect of overseas dividends pre-July 2009.
HMRC launch tax administration call for evidence on enquiry powers, penalties and safeguards
On 15 February 2024, HMRC published a new call for evidence as part of their ongoing tax administration framework review. The call for evidence, which covers all major UK taxes, duties and national insurance contributions, looks at HMRC’s enquiry and assessment powers, penalty rules, and taxpayer safeguards, and in each area invites views on a wide range of potential options to reform aspects of these as part of the government’s commitment to establish a trusted and modern tax administration system. Many of the potential reforms listed highlight current inconsistencies between the rules for different UK taxes and identify opportunities for greater alignment. Other options would seek to simplify and/or improve the effectiveness of current rules. The call for evidence is open until 9 May 2024. HMRC state that responses to this call for evidence will inform any future policy proposals to reform the tax administration framework in these areas, which could then be subject to further consultation.
Research and development tax relief – consultation on draft guidance
The current Finance Bill (see above) will introduce changes to corporation tax research and development (R&D) reliefs, generally applicable for accounting periods beginning on or after 1 April 2024. These changes include restrictions on the extent to which contractor payments for R&D and payments for externally-provided workers can qualify for relief where the R&D activity takes place overseas, and new rules for contracted-out R&D. On 9 February 2024, HMRC published draft guidance for consultation on these specific changes. The consultation is open until 1 March 2024. The draft guidance does not cover any other changes to R&D reliefs to be made by Finance Act 2024, however HMRC state that they will publish full guidance on these later this year.
HMRC consulting on IR35 tax liability offsetting legislation
Further to an announcement at Autumn Statement 2023, HMRC have published Calculating PAYE liabilities in cases of non-compliance for off-payroll working (IR35). This technical consultation seeks views on draft regulations and draft HMRC manual guidance for a mechanism by which HMRC, when recovering tax due under PAYE from a deemed employer following non-compliance with the IR35 off-payroll working rules, would be able to account for taxes already paid by the individuals or their intermediaries on the income. The enabling legislation for the proposed regulations is contained within Clause 17 of the current Finance Bill (see above). The consultation is open until 22 February 2024.
UK government publishes command paper on Northern Ireland
Shortly before the restored operation of the Northern Ireland government institutions earlier in February, the UK government published a command paper, Safeguarding the Union, which sets out a package of proposed measures intended to protect “Northern Ireland’s political and constitutional place in the Union, strengthen the operation of the UK internal market, and support ever greater opportunities for trade within it”. Measures include statutory protections for Northern Ireland’s constitutional position and continued access to the UK’s internal market, and the establishment of a UK East-West Council and Intertrade UK (a new body to promote trade within the UK).
With respect to the operation of the Windsor Framework, the paper proposes replacing the ‘green lane’ with a broader UK internal market system and introducing an internal market guarantee to protect UK trade flows. The intention is to remove checks on goods moving within the UK internal market system, except checks undertaken by UK authorities to prevent abuse, criminality and the risk of disease, and broaden the range of goods that can be moved within the UK internal market system.
Annex B of the paper includes an update on the devolution of corporation tax powers to Northern Ireland. An Act allowing for a devolved power to set a Northern Ireland rate of corporation tax to apply to certain trading income was enacted by the UK parliament in 2015. The update commits the UK government to a “rapid, focused process” on implementation of corporation tax devolution through a new Joint Exchequer Committee. Annex B also includes an update on plans for an Investment Zone for Northern Ireland to provide targeted tax incentives to encourage investment and boost growth.
DuelFuel Nutrition Limited: VAT treatment of sports nutrition bars – First-tier Tribunal
DuelFuel Nutrition Limited makes twin packs of sports nutrition bars, marketed as a flapjack (to be eaten prior to exercise) and a brownie or cake slice (for recovery following exercise). In a new decision of the First-tier Tribunal (FTT), neither of the products qualified for zero-rating as cakes. For historical reasons, HMRC have always accepted that flapjacks can be treated as cakes in certain circumstances, but this approach does not extend to products such as cereal bars or flapjacks with more than minor additions (which typically includes energy or sports nutrition bars). HMRC therefore ruled that DuelFuel should charge VAT at the standard rate on its products. On appeal, the FTT conducted a multifactorial review of the products’ ingredients, taste and texture, packaging and marketing, and circumstances of consumption, etc. and concluded that they were not cakes, and could not be zero-rated as cakes. The FTT then had to consider whether the products were ‘confectionery’, and concluded that, in the normal sense of the word, they were not. However, it accepted HMRC’s argument that Note 5 (to Group 1, Schedule 8, VATA 1994) deems “sweetened prepared food which is normally eaten with the fingers” to be confectionery so long as it does not produce an absurd result. The FTT rejected DuelFuel’s claim for a more restrictive interpretation, and concluded that the products were confectionery, and therefore subject to VAT at 20%.
EMEA Dbriefs webcasts
You can catch up on demand with any recent EMEA Dbriefs tax webcasts you may have missed, including UK Tax Update – February, ‘Next-Gen’ Digital Invoicing And Reporting In The Modern Tax Environment, Update On Latest OECD Developments – Pillar Two, Accessing Global Talent: The Future Of Global Mobility and Transfer Pricing – Effective Use Of Mutual Agreement Procedures. If you want to be informed about upcoming webcasts, please subscribe to receive our bi-weekly mailing.