A round up of other news this week.
We understand that HMRC are contacting businesses impacted by the state aid recovery enquiry in respect of the controlled foreign company (CFC) finance company exemption. In light of the disruption being caused by the COVID-19 virus, notices have been issued to affected businesses providing an immediate 30 day extension to the 60 day deadline contained in HMRC’s recent requests for further information.
Some notices or other documents are required by legislation to be issued by an Officer of HMRC. New legislation in the Finance Bill confirms that an Officer of HMRC can include notices issued by a computer as well as a person. This relates to, amongst others, a tax return issued to a person, trustee, partnership or company; amending a personal or trustee tax return; and making of an assessment or determination (including penalties). Therefore anything done by HMRC has the same effect as it would have if done by an officer of HMRC.
In the Budget held on 11 March 2020, it was announced that expected changes intended as an ‘anti-abuse’ measure to the Research and Development (R&D) tax incentives for Small and Medium sized companies (SMEs) have now been delayed for a year and are now expected to be introduced with effect from 1 April 2021. HMRC had consulted on their original proposals to introduce a cap on repayments of R&D tax credits to SMEs equal to three times a claimant company’s total PAYE and NIC, but having consulted with businesses they are now looking at introducing extra safeguards for genuine businesses to be able to still access R&D tax credits. A second consultation covering changes to the design of the measure has now been published and is open for comments until 28 May 2020. HMRC also announced that they will undertake a consultation on extending the definition of qualifying expenditure to include investment by businesses in cloud computing and data services. This is a change that would particularly benefit the pharmaceutical and IT sectors. A timeframe for the latter consultation has not yet been announced.
HMRC have published a report providing an update on the introduction and roll-out of Making Tax Digital (MTD) before the Government decides on the next phases of the programme. It includes an evaluation of the roll-out of MTD for VAT and an update on where things stand with the income tax pilot.
A change to the main UK corporation tax rate, announced in the Budget on 11 March 2020, was substantively enacted for IFRS and UK GAAP purposes on 17 March 2020. The rate applicable from 1 April 2020 now remains at 19 percent, rather than the previously enacted reduction to 17 percent. The effect of this change cannot be reflected in interims or full year-ends with a balance sheet date prior to 17 March 2020 but should, where the effect is expected to be material, be disclosed in accounts signed after this date. In assessing the appropriate level of disclosure, for balance sheet dates before 17 March 2020, any significant effect of the increase to 19 percent on deferred tax balances at the balance sheet date should be disclosed. If it is not practicable to determine the effect of the rate reductions, as a minimum disclosure of the rate change should be given, together with a general indication of the likely effect (for example, a reduction in deferred tax liabilities or, in more simple cases, a reduction in the future current tax charge) or a statement that an estimate of the effect cannot be made. For balance sheet dates ending on or after 17 March 2020, deferred tax balances will need to be re-measured to 19 percent. The position for US GAAP is different – the rate change is not reflected in the accounts until the Finance Bill receives Royal Assent which is likely to still be some time away. There also aren’t any specific requirements in US GAAP to make a disclosure about proposed or announced, but not enacted legislation. That said, if proposed legislation has a combination of a high likelihood of enactment and is expected to be material, it might be a best practice to give some form of disclosure to investors, even if the impacts aren’t quantified.
HMRC have announced a consultation on raising standards in the tax advice market which is open for responses until 28 May 2020. HMRC’s strategy to tackle promoters of mass-market tax avoidance schemes has also been published.
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