Monthly Tax Update

Finance Bill update

Finance Bill 2024-25, the Finance Bill introduced following Autumn Budget 2024, has completed its Committee stages. Each of the 65 amendments, and one new clause, tabled by the government in December and January (details here and here) were approved by the Public Bill Committee, and an updated version of the Bill as amended has been published. The Bill’s remaining Commons stages (Report Stage and Third Reading) are provisionally scheduled for 3 March 2025.

Court of Appeal allows HMRC’s appeal on LLP salaried members legislation

HMRC’s appeal in the LLP ‘salaried members’ legislation case BlueCrest Capital Management (UK) LLP and others has been unanimously allowed by the Court of Appeal. The case concerned the rules, enacted in 2014, which, if three statutory conditions are all met, can lead to certain individual members of an LLP being treated for income tax and NIC purposes as an employee receiving a salary, rather than as a self-employed partner. The appeal focussed on ‘Condition B’; whether the relevant “mutual rights and duties” of the members and the LLP give an individual “significant influence over the affairs of the partnership.” The Court of Appeal found that the lower Tribunals had misinterpreted Condition B when, in addition to considering the LLP Agreement and any other sources of legally enforceable rights and duties, they unduly considered influence derived from more informal or de facto arrangements in place (whether or not enforceable). The Court has remitted the case back to the First-tier Tribunal to reconsider the application of Condition B based on the Court’s analysis of the law.

The Court also dismissed an argument raised in cross-appeal in relation to ‘Condition A’; the extent to which amounts received were fixed or variable by reference to the LLP’s overall profits. The Court held that the Tribunals were right to hold that Condition A was satisfied.

Court of Appeal allows taxpayers’ appeal on the deductibility of redress payments

The Court of Appeal has unanimously allowed an appeal by the taxpayers in ScottishPower (SCPL) Limited and others, concerning the corporation tax deductibility of payments made pursuant to settlement agreements with regulators. The taxpayers, regulated by the UK energy regulator, Ofgem, entered into agreements in settlement of a number of regulatory investigations. They paid penalties in nominal amounts, together with agreed ‘redress’ payments to consumers, consumer groups and charities totalling approximately £28 million.

The Upper Tribunal had agreed with HMRC that none of the disputed expenditure was deductible. It considered that the principles established in case law, denying trading deductions for penalties or fines incurred under a statutory regime even when incurred in the course of trading activities, applied to all expenses which have the nature or character of a penalty. The Court of Appeal disagreed. In the Court’s view there was no support for the extended application of the principles to amounts which are not, in fact, fines or penalties. Nor was there support for a proposition that the deductibility of a payment should be determined by reference to the nature of a payment it may replace. As the redress payments were incurred in the course of the trade, and were properly accounted for, the Court considered there was nothing else in law preventing their deductibility.

HMRC consulting on supplementary draft UK Pillar Two guidance

On 28 January 2025, HMRC published supplementary draft manual guidance on multinational top-up tax and domestic top-up tax, the UK’s implementation of the OECD Inclusive Framework’s Pillar Two global minimum tax rules. The draft guidance follows earlier releases of draft guidance issued in June 2023, December 2023, and September 2024. HMRC are inviting feedback on the draft guidance, as well as any previously released draft guidance, by 8 April 2025. HMRC note that this will be the final release of draft guidance before the publication of their Pillar Two guidance manual “in late spring”.

HMRC provide update on tax reporting information requirements

In March 2024, HMRC launched a technical consultation, titled Improving the data HMRC collects from its customers, on proposed draft PAYE regulations which would require employers’ Real Time Information (RTI) returns to include more detailed information on employees’ working hours within each relevant pay period. HMRC have now published a consultation outcome, announcing that they will not be proceeding with the RTI changes.

The same consultation also included separate proposed draft income tax regulations that would, from April 2025, require additional information to be included in self-assessment tax returns in relation to commencement and cessation of business activities and certain matters relating to close companies. This change will be proceeding and the required regulations were made on 27 January 2025. HMRC’s explanatory memorandum on the regulations is here.

UK announces suspension of double tax treaties with Russia and Belarus

On 4 February 2025, HMRC updated their pages on GOV.UK covering the UK’s double taxation conventions with Russia and Belarus with additional notes. The notes state that, following treaty article suspensions announced by Russia and Belarus in 2023 and 2024, the UK has notified both countries of its intention to suspend its double tax conventions with them. The double tax conventions will cease to have effect in UK law with effect from 1 April 2025 for corporation tax and similar taxes, and from 6 April 2025 for income tax and capital gains tax and similar taxes. The terms of the treaties will continue to apply in the UK for earlier periods. Two draft statutory instruments – here and here – have been laid before the House of Commons for its approval.

Government launches consultation on electronic invoicing

On 13 February 2025, HMRC and the Department for Business and Trade (DBT) opened a consultation titled Electronic invoicing: promoting e-invoicing across UK businesses and the public sector. The government considers that increased uptake of e-invoicing in the UK may improve productivity, improve cashflow, simplify tax reporting, and reduce the tax gap. Accordingly, the government is looking to explore the options for different models to encourage uptake.

At present there are no required standards for e-invoicing (except for suppliers to NHS England). The consultation notes that for e-invoicing to be beneficial, all systems would need to be able to interact with each other, based on common standards. The consultation asks for views on how standards could be used to support e-invoicing adoption and potential benefits, but at this stage the government is not looking to identify specific standards for adoption. It also asks for feedback on whether e-invoicing should be voluntary or mandatory. The consultation makes it clear that the government is not seeking to implement a centralised e-invoicing model which would require suppliers to submit and validate invoices to a centralised platform before they are issued to the customer. It does, however, leave the possibility of implementing a centralised data share model which would require suppliers to issue invoices to a central platform to allow HMRC the ability to read and extract transaction details, as well as allowing customers to receive and process e-invoices. 

In addition to the consultation, the government will hold business round tables and other events to enable stakeholders to contribute to future policy development in this area. If there is a decision to proceed with the introduction of a standard for e-invoicing, there is a commitment to work with businesses and representative organisations, including the software and accounting sectors. The consultation is open until 7 May 2025. (Contact: Giuseppe Ciampa)

EMEA Dbriefs tax webcasts

We have four Dbriefs webcasts over the next month: Future changes which impact the use of umbrella companies – what should you know and do next (19 February); Public country-by-country reporting – navigating the tax transparency landscape (25 February); UK Tax Update – March (4 March); and Withholding tax for UK borrowers (12 March). Please visit our Dbriefs website for more information, and to view any other recent webcasts on demand.