The Scottish Budget was presented on 9 December 2021. As expected, no changes are proposed to the five Scottish income tax rates applicable to the non-savings, non-dividend income of Scottish resident taxpayers (19%, 20%, 21%, 41%, 46%) for 2022/23. Inflationary increases are proposed for starter and basic rate bands, whilst the higher and top rate thresholds will remain frozen in cash terms at £43,662 and £150,000 respectively. The Scottish government’s summary factsheet on the income tax changes is here. No changes were announced on Land and Buildings Transaction Tax (LBTT) rates and bands. A call for evidence on the operation of LBTT’s 4% Additional Dwelling Supplement (ADS) has since been launched. Scottish Landfill Tax rates will be increased to keep them consistent with rates in the rest of the UK. On business rates, the 100% relief for businesses in the retail, hospitality, leisure and aviation sectors is still due to come to an end in April. To avoid a cliff edge, there will be 50% relief for those businesses for the first three months of 2022/23, capped at £27,500 per ratepayer. Full rates relief for some small businesses will be maintained for 2022/23. The full Budget documents are here.
Tax Administration and Maintenance Day
Tax Administration and Maintenance Day was on 30 November 2021. The government’s command paper, summarising the day’s announcements, is here. Also published were a Written Ministerial Statement, an HMRC press release, the government’s responses to the Office of Tax Simplification Reports and a page listing the individual announcements. The documents published included responses to consultation documents, and accompanying policy announcements, including:
The government has responded to the reports of the Office of Tax Simplification (OTS) on capital gains tax, confirming that it will implement some of the reports’ recommendations.
In response to the OTS’s second report on inheritance tax (IHT), in which the OTS considered various key aspects of IHT, including business property relief and lifetime gifts, the government has stated that it will not proceed with any changes at the moment. HM Treasury has also reported following its statutory review of the effectiveness of the OTS, which it is obliged to conduct every five years, and has made eight recommendations for improvement. These include asking the OTS to be more explicit in stating the reasoning behind its recommendations, and, when making recommendations, to highlight more clearly those which it views as most important.
A number of new consultations were published, including on issues arising from the recent business rates review; on mandatory disclosure rules targeted at Common Reporting Standard (CRS) avoidance arrangements and ‘opaque offshore structures’ (based on OECD model rules to replace current rules which are based on retained elements of EU DAC6); and on possible changes to Stamp Duty Land Tax in relation to mixed-property purchases and multiple dwellings relief. There are also new calls for evidence, including on the key design features of Landfill Tax and on the role of umbrella companies in the labour market.
Finance (No 2) Bill: update
The Finance (No 2) Bill had its second reading in the Commons on 16 November 2021. The debate is here. Parts of the Bill were debated by a Committee of the Whole House on 1 December 2021. The debate is here. Amendments were made to Clause 28 on diverted profits tax. The remainder of the Bill now goes to a Public Bill Committee which first met on Tuesday 14 December and must conclude by Thursday 13 January 2022. The amendments for the Public Bill Committee include government amendments 1 to 6 relating to Schedule 2 (qualifying asset holding companies) and government amendments 7 to 10 to Schedule 15 (large businesses: notification of uncertain tax treatment). HM Treasury has published explanatory notes on these amendments. The government amendments to Schedule 2 were passed at the first sitting of the Committee. The debate is here.
India and United States agree transitional approach on India’s equalisation levy and Pillar One
On 24 November 2021, the governments of India and the United States published press releases, announcing a compromise agreement on a transitional approach to phasing out India’s equalisation levy regime. This follows on from the agreement in early October between countries of the OECD/G20 Inclusive Framework on the two-pillar solution to address the tax challenges arising from digitalisation. Pillar One of the two-pillar solution would reallocate taxing rights in favour of market countries, coordinated with the removal of all digital services taxes (DSTs) and other relevant similar measures. The India-US agreement will mirror the recent compromise reached between the US and five European countries with DSTs (including the UK). India will collect the 2% equalisation levy during the interim period prior to the commencement of Pillar One. However, for the largest and most profitable multinationals (i.e. those in the scope of Pillar One’s ‘Amount A’ rules), India is expected to subsequently allow a credit for 'excess' equalisation levy over their Amount A tax in the first year, to be set against the Indian Amount A tax liability. As part of the agreement, the US will terminate the trade tariffs on India imposed (but currently suspended) in response to the levy. Other smaller multinationals will continue to pay the equalisation levy in the interim period, and once Pillar One is implemented, these multinationals will no longer be subject to the levy and neither will they be in scope of Amount A. Turkey has also agreed a similar approach with the US to the phasing out of its DST.
EU adopts Directive on public country-by-country reporting
On 11 November 2021, the European Parliament voted to approve the Directive for public country-by-country reporting in the EU. As a qualifying majority of the Member States approved the compromise proposal in September, the Directive has now been formally adopted. The Directive will require multinationals with worldwide 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 certain third countries on the EU list of non-cooperative jurisdictions. Both EU-parented groups and non-EU parented groups with large or medium-sized EU subsidiaries or branches will have reporting obligations. The reporting would take place within 12 months from the date of the balance sheet of the financial year in question. The Directive sets out the conditions under which a business may be able to obtain a deferral of the disclosure of certain commercially sensitive data for a maximum of five years. The Directive is due to enter into force 20 days after its publication in the Official Journal of the EU on 1 December 2021, after which Member States have 18 months to transpose the Directive into national laws. Mandatory reporting under the Directive is expected to begin in circa 2025, but individual Member States have the option to implement the rules sooner. See the article here.
Imports from Ireland, from 1 January 2022
The first phase of new customs controls for imports from the EU will be implemented on 1 January 2022. Implementation for goods moving from Ireland to Great Britain is complicated by the need to ensure unfettered access for goods from Northern Ireland, and because negotiations on the Northern Ireland Protocol will not be definitively completed by 1 January. Given this uncertainty and complexity, Lord Frost (Minister of State in the Cabinet Office) has announced in a Written Ministerial Statement (HLWS473) that ‘goods moving from the island of Ireland directly to Great Britain will continue to do so on the basis of the arrangements that apply currently, until further notice; and will not, for now, be affected by the changes being introduced on 1 January for all other inbound goods.’ This change will be legislated for before 1 January 2022, and the Border Operating Model has been updated accordingly. It means that importers of non-controlled goods from Ireland to Great Britain, or from Northern Ireland to Great Britain via Ireland, can continue to delay making their customs declarations for up to 175 days if they make an entry in declarant’s records at the time of import.