A round up of other news this week.
The Public Accounts Committee (PAC) has published a report on management of tax reliefs. The report is critical of the lack of evaluation carried out by HMRC on these reliefs to determine whether they work and offer value for money and many of the recommendations focus on improving the evaluation process. Pension reliefs, in particular, are singled out as being among the most expensive, forecast to cost £38 billion in 2018-19, and the report recommends that HMRC should assess the groups and sectors benefiting from all significant reliefs and publicly report the results during 2021, with the data for pension reliefs split by: income; groups with protected characteristics such as gender, age, ethnicity; people working in the public and private sectors; and people in defined contribution and defined benefit schemes. At the moment these are just recommendations and we do not know how the Government will respond or whether the report will influence decisions to be made in the Autumn Budget on areas to cut spending.
On 20 July the Office of Tax Simplification (OTS) published a note which provides an evaluation of its corporation tax and accounting depreciation or capital allowances reviews and an update on its work on personal service companies and self-employed people’s taxation. In particular the OTS highlights that it looks forward to contributing to any future work by HMRC on the recommendation to explore tax following the accounts more closely, particularly for smaller companies, and that it is interested in the possibility of a statutory definition of employment for tax purposes being developed. The OTS also suggests renewed consideration of enabling a small personal service style business to operate through a UK limited company while being treated as transparent for tax, removing the business from corporation tax (salaries, dividends and loans to participators being ignored for tax purposes), together with the relative ease of a self-employment style tax calculation. Another recommendation is the integration of personal and business tax accounts by HMRC to facilitate the simplification of tax administration for the self-employed. Then on 21 July the OTS published its fourth Annual Report covering the year to 31 March 2020.
The Treasury Committee has launched a new inquiry on ‘Tax after coronavirus’. The Committee will consider what the major long-term pressures on the UK tax system are, what more the UK can do to protect its tax base from globalisation and technological change, and whether such pressures should be met with tax reform. The Committee is seeking evidence until 28 August 2020 on what overall level of taxation the economy can bear, the role of tax reliefs in rebuilding the economy, and whether there is a role for windfall taxes.
HMRC’s international manual at INTM120070 has been updated to confirm the approach HMRC will take in applying the treaty residence tie-breaker test where companies have historic residence determinations in place. The OECD’s multilateral instrument (MLI) introduced a residence tie-breaker based on competent authority determination (rather than place of effective management (POEM) as had typically been the case previously) and this is now being reflected in many of the UK’s Double Tax Agreements (DTAs). HMRC have now confirmed that where there was a residence determination in place prior to a DTA being modified by the MLI “HMRC will generally not seek to revisit any previous determination of the treaty residence position so long as all the material facts remain the same”. This will not be the case, however, where HMRC believe the principal purpose test (PPT) in the MLI would deny treaty benefits – in this situation “HMRC may seek a new determination from the date on which the modification came into effect”. HMRC accept they cannot apply this new approach unilaterally and it will be subject to agreement between competent authorities – such agreement has already been reached for specified circumstances with New Zealand, the Netherlands, Jersey, Guernsey and Isle of Man. This is a welcome development but it is important to note the guidance only refers to situations where there have been previous determinations, not where the company has self-assessed its residence under the POEM test.
The Government has published a policy paper on the VAT treatment of overseas goods from 1 January 2021. At the end of the Brexit transition period, the Government intends to introduce a new model for the VAT treatment of goods arriving into Great Britain from outside of the UK in order to ensure that goods from EU and non-EU countries are treated in the same way. The policy paper outlines the various changes to the current VAT rules that will be required to achieve this. At this stage the Government has not provided guidance on the Northern Ireland protocol in the paper as the VAT and excise implications are still being worked through. HMRC note that guidance on this will be provided by the end of the Brexit transition period. The publication of this paper follows the release on 13 July 2020 of the UK’s proposed new Border Operating Model.
The Government has opened a consultation seeking the views and expertise of stakeholders to help develop the 2025 UK Border Strategy. The stated aim is to “ensure that the Government and industry are able to work in partnership together to deliver a world class border”. The announcement makes it clear the Government is not seeking views on the Border Operating Model or arrangements for the border at the end of the transition period. Instead this consultation is focussed on the long-term ambition for the UK’s border. Given the brief it is perhaps surprising that the consultation is only open for five weeks with a closing date of 28 August 2020.
We understand that HMRC have recently contacted a number of large businesses to request details of the accounting systems, software, processes and any tax engines used in order to prepare and produce tax returns for submission to HMRC across all tax regimes, including details of systems and software used by third party service providers. This appears to be driven by a desire to identify and communicate the strengths and weaknesses of the various accounting systems used by businesses. If you receive such a request and would like to discuss it please speak to your usual KPMG contact.
Following on from the reduction in the stamp duty land tax (SDLT) residential rates announced by the Chancellor for England and Northern Ireland, Scotland and Wales have followed suit – to a lesser extent. The Scottish Government has increased the nil rate band of its land and buildings transaction tax for residential properties from £145,000 to £250,000 with effect from 15 July 2020 until 31 March 2021. The additional dwelling supplement (ADS) of four percent (similar to the three percent surcharge for SDLT) will continue to apply. The Welsh Government has similarly increased its land transaction tax nil rate band for ‘standard’ residential property purchases from £180,000 - £250,000 with effect from 27 July 2020, until 31 March 2021 however in Wales the change applies only to individuals acquiring their only residential property, or replacing their previous main residence. The rates and thresholds applicable to purchases of additional/second homes, residential purchases by non-natural persons, commercial or mixed use property remain unchanged.
On 13 July 2020, HMRC opened a technical consultation on draft regulations that will amend the Bank Levy rules. The aim of the regulations is to clarify the rules on deductions from a UK entity’s equity and liabilities where it holds assets representing loss absorbing instruments issued by overseas subsidiaries to meet regulatory requirements. The consultation is only open for four weeks and closes on 10 August.
Yael Selfin, Chief Economist at KPMG UK commented on the recent GDP figures stating “the worst may be behind us but a full recovery is not yet on the horizon.”
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