Monthly Tax Update

Tax Administration and Maintenance Day

The government held its Tax Administration and Maintenance Day on 18 April 2024, which saw the publication of a small number of technical tax policy proposals to support its “ambition to make the tax system fairer and tackle non-compliance”. The following announcements and consultations were set out in the government’s written ministerial statement and supporting HMRC policy paper:

• Consultation on the VAT treatment of private hire vehicles: The government published a new consultation on the potential VAT impacts of recent High Court rulings (such as Uber Britannia Limited v Sefton Borough Council) on the private hire vehicle (PHV) sector. The consultation invites views on potential government interventions that could help to mitigate any undue adverse effects on the PHV sector and its passengers. The consultation is open until 8 August 2024.
• Tackling non-compliance in the umbrella companies market: The government confirmed that it will publish a response to its June 2023 consultation on reducing tax non-compliance in the umbrella company market “in due course”. HMRC will publish guidance later this year that will include an online pay checking tool to help umbrella company workers to check whether the correct deductions are being made. The government also states that it is minded to introduce a due diligence regime for businesses that use umbrella companies and it will continue to engage with key stakeholders on the detail of this.
• VAT treatment of charitable donations: In order to encourage charitable giving, the government will consult on introducing a targeted VAT relief for certain low value goods that businesses donate to charities for them to give away to people in need. Donations that could be in scope could include anything that may be of use to a household such as hygiene items, second hand items from hotels, and cleaning supplies. The consultation will be launched before 23 July 2024.
• Mandating Postcode provision for Freeports and Investment Zones NICs reliefs: The government will, from 6 April 2025, require employers operating in a Freeport or Investment Zone special tax site to provide employee workplace postcodes in PAYE submissions to HMRC if they are claiming the relevant relief from Class 1 employers’ NICs. A consultation on draft regulations closes on 15 May 2024.

Finance Bill progress

The Finance Bill introduced following March’s Spring Budget – Finance (No. 2) Bill 2023-24 – completed its House of Commons Committee of the Whole House stage on 8 May 2024. The Bill’s clauses on income tax rates, corporation tax rates, and the energy profits levy’s new energy security investment mechanism were debated in the Commons chamber by MPs. The Bill will now move into the Public Bill Committee, with its proceedings due to conclude by 23 May 2024 at the latest.

OECD Inclusive Framework publishes consolidated version of Pillar Two commentary

On 25 April 2024, the OECD/G20 Inclusive Framework published a consolidated commentary to the Pillar Two model global minimum tax rules. The consolidated commentary puts together in one document the original Pillar Two commentary (first published in March 2022) and subsequent further releases approved and published by the Inclusive Framework before the end of December 2023, including on the country-by-country reporting safe harbour (published in December 2022) and the three sets of Agreed Administrative Guidance on Pillar Two (published in February, July and December 2023). Please see Deloitte’s alert for more details on the structure of the consolidated commentary and its accompanying examples.

Withholding tax on interest – beneficial entitlement and yearly interest: Court of Appeal

The Court of Appeal has dismissed the taxpayer’s appeal in the withholding tax case Hargreaves Property Holdings Limited v HMRC, concerning interest paid by the taxpayer on financing originating from overseas. Changes were made to the terms on which the loans were advanced that saw the lenders repeatedly assigning rights to third parties shortly before the loans were repaid and then re-advanced by the original lenders. From 2012 onwards, the arrangements were further altered to assign the right to receive the interest to a UK-resident company. HMRC considered that, throughout, the taxpayer had an obligation to withhold tax under section 874 Income Tax Act 2007 (‘Duty to deduct from certain payments of yearly interest’).

Whilst the Tribunals considered and dismissed two additional grounds of appeal (in relation to whether the interest had a UK-source – yes; and whether a double tax treaty removed some obligations – no), the Court of Appeal addressed only two remaining grounds. It first dismissed an argument that an exception for payments to a UK-resident company within section 933 ITA 2007 applied from 2012. This applies only if the UK-resident company is ‘beneficially entitled to the income’. The Court of Appeal held that the relevant company was not beneficially entitled to the interest for section 933 purposes. Secondly, the Court of appeal held that, notwithstanding that the duration of individual loans was less than one year, the interest thereon was still ‘yearly interest’ subject to withholding: the loans were in the nature of long-term funding, and on a business-like assessment, could not be viewed in isolation as short-term advances.

HMRC publish additional guidance on plant and machinery allowances claims

On 7 May 2024, HMRC published a new set of guidance pages titled Help to avoid errors in claims for plant and machinery allowances (GfC5). The guidance forms part of HMRC’s new ‘Guidelines for Compliance’ (GfC) programme that sets out HMRC’s views on a number of complex or widely misunderstood UK tax risks. In GfC5, HMRC state that they have identified certain areas where there is a particular risk that a claim for capital allowances on plant or machinery may be inaccurate. The guidance covers common areas of error and includes HMRC’s recommended approach to claims. HMRC stress that the new guidelines do not represent any change in the law or HMRC policy. They should be read alongside existing HMRC capital allowances guidance and are not designed to be used in isolation, or to create an end-to-end process for businesses to comply with the rules.

Company Tax Return taxonomies accepted by HMRC

For most corporation tax returns, HMRC require a valid submission to include an electronic version of the company’s financial accounts marked up in iXBRL in accordance with an appropriate iXBRL taxonomy. On 24 April 2024, HMRC updated their guidance page Taxonomies accepted by HMRC. Two new taxonomies have been added to the page’s tables of acceptable iXBRL taxonomies (‘FRC 2024’ and ‘US GAAP 2023’). An end date of 31 March 2025 has also been added for acceptable use of the ‘FRC 2022’ taxonomy.

Revenue and Customs Briefs – VAT and excise law from 2024; TOMS and B2B wholesale supplies

Following the Retained EU Law (Revocation and Reform) Act 2023 (REULA), which removed the supremacy of EU law, and section 28 Finance Act 2024, which sets out how VAT and excise legislation should be interpreted in light of the REULA, on 15 April 2024, HMRC published Revenue and Customs Brief 4 (2024) on the interpretation of VAT and excise law from 1 January 2024. The brief states that “In short, UK VAT and excise legislation means the same as it did on 31 December 2023”.

On 18 April 2024, HMRC also published Revenue and Customs Brief 5 (2024) on the application of the VAT Tour Operators’ Margin Scheme (TOMS) for business-to-business (B2B) wholesale supplies of certain travel services. HMRC’s previous policy with respect to services supplied to other businesses for onward sale (B2B wholesale supplies) was that they were subject to the normal VAT rules, although tour operators could choose to include them in TOMS. HMRC have reviewed this policy, and concluded that B2B wholesale supplies are within the scope of TOMS, but by concession tour operators may opt out of TOMS with respect to these supplies if they wish. The change is to apply with immediate effect. (Contact: Andrew Clarke)

EMEA Dbriefs webcasts

We have a number of Dbriefs webcasts over the next month including: 2024 Japan Tax Reform Proposals: Inflation, Investment And Inhibition (30 May) and UK Tax Update - June (11 June). For more information, and to view recent webcasts on demand, please visit our Dbriefs website.