Monthly Tax Update

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.

Autumn Finance Bill

The Finance Bill, to enact those tax measures in Autumn Statement documents listed by HM Treasury as included in ‘Autumn Finance Bill 2023’, has continued its progress through the House of Commons. Its Committee of the Whole House proceedings completed last week and Public Bill Committee proceedings concluded earlier this week. All clauses and schedules were approved without amendment. No dates have been announced yet for the Bill’s remaining Commons stages (Report Stage and Third Reading).

National Insurance Contributions (Reduction in Rates) Act 2023 – Royal Assent

The National Insurance Contributions (Reduction in Rates) Act 2023 received Royal Assent on 18 December 2023. The Act implements the Autumn Statement’s key national insurance announcements, including the reduction in the Class 1 employee NIC rate from 12% to 10%, which took effect from 6 January 2024, and reductions to self-employed individuals’ NICs from 6 April 2024.

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. Announcements included:

• Reform of transfer pricing, permanent establishment and diverted profits tax: the government has published a summary of responses to its June 2023 consultation on proposals to reform UK law in relation to transfer pricing, permanent establishments, and diverted profits tax (DPT). The government will continue to engage with stakeholders on its proposals with a view to publishing draft legislation for consultation later in 2024.
• Enhancing the non-reimbursed expenses service: HMRC plan to simplify the process for many employees claiming tax relief on their non-reimbursed expenses. The government is designing a new, online service for employees to claim tax relief on all of their expenses in one place and for HMRC to automatically process claims. Further details will be provided later this year.
• Mandating the payrolling of benefits in kind: the government will mandate the reporting and paying of income tax and Class 1A NICs on benefits in kind via payroll software from April 2026. HMRC will engage with stakeholders and draft legislation will be published later this year.
• Tax simplification for alternative finance: a consultation has been published proposing changes to capital gains rules, for both individuals and companies, to address differences in the tax treatment when a commercial or residential property is refinanced using alternative finance arrangements (e.g. Islamic financing) rather than through conventional financing. The consultation also seeks views on whether there are any capital allowances implications. The consultation is open until 9 April 2024.

Government announces introduction of a UK Carbon Border Adjustment Mechanism by 2027

In March 2023, the government launched a consultation on potential policy measures to mitigate carbon leakage risk to support decarbonisation in the UK. On 18 December 2023, the government published its response and announced its intention to implement a ‘carbon border adjustment mechanism’ (CBAM) by 2027. This new UK levy will target imports of carbon-intensive products such as iron, steel, aluminium, fertiliser, hydrogen, ceramics, glass and cement. The government has published a factsheet on the key elements of the UK CBAM, and its design and delivery will be subject to further consultation in 2024. The government also announced that the UK Emissions Trading Scheme (ETS) will be extended to run until at least 2050 and has launched further consultations on its future operation.

Scottish and Welsh Budget announcements

On 19 December 2023, the Scottish government presented its proposed Budget for the 2024-25 tax year. On the rates of income tax applicable to the non-savings, non-dividend income of Scottish-resident taxpayers, a new ‘Advanced’ rate of 45% for incomes between £75,000 and £125,140 is proposed, as well as increasing the Top rate on income above £125,140 from 47% to 48%. An income tax factsheet summarising the rates and bands proposed has been published. No changes are proposed to land and buildings transaction tax (LBTT) rates or bands.

On the same day, the Welsh government published its draft Budget for 2024-25. As in previous years, the Welsh government proposes to keep the devolved rates of income tax aligned with England and Northern Ireland. No changes to land transaction tax (LTT) were proposed.

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.

HMRC consulting on draft UK Pillar Two guidance

Multinational top-up tax and domestic top-up tax, the UK’s implementation of an income inclusion rule and a qualified domestic minimum top-up tax under the G20/OECD Inclusive Framework’s Pillar Two global minimum tax rules, have entered into effect and apply to periods beginning on or after 31 December 2023. Further to an initial tranche of draft guidance issued in June 2023, HMRC have published further draft manual guidance on these new taxes and are inviting feedback by 7 February 2024.

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.

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.

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 (SI 2024/12) 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.

EMEA Dbriefs webcasts

We have a number of Dbriefs webcasts over the month including: Update On Latest OECD Developments: Pillar Two, Taking Action On Tax Evasion: Corporate Criminal Offence And Beyond and UK Tax Update - February. For more information, and to view recent webcasts on demand, please visit our website.