A round up of other news this week.
HMRC launched the Profit Diversion Compliance Facility (PDCF) in January 2019 to encourage multinational enterprises to come forward and address any transfer pricing and other cross-border issues that HMRC may perceive to be high risk as an alternative to a formal enquiry. Periodically HMRC have been issuing nudge letters to small numbers of businesses they have identified as presenting risks of profits being diverted out of the UK and on 11 September 2020 HMRC issued the latest tranche of these letters. If you receive such a letter and have any questions or concerns please discuss this with your usual KPMG contact. For further information please also see the LinkedIn article from our transfer pricing specialists Nick Stevart and Matt Whipp reflecting on their experiences of the PDCF over the last 12 months.
The Chancellor has asked the Office for Budget Responsibility (OBR) to prepare an economic and fiscal forecast to be published in mid to late November. The OBR usually produces forecasts twice a year, to accompany each Autumn Budget and Spring Statement, however, at this stage, no Budget date has been confirmed by the Treasury. By not naming a date, the Chancellor has given the Government the flexibility to delay the Budget, but nothing has yet been confirmed.
The Government has announced that businesses in England required to close due to local lockdowns or targeted restrictions, will be able to receive grants for each three week period that they are required to close for. The largest businesses will receive £1,500 every three weeks they are required to close while smaller businesses will receive £1,000. Local authorities will be responsible for distributing the grants and may impose further eligibility criteria. Businesses still closed at a national level, for example nightclubs, will not be eligible. These local grants available to closed businesses, will be treated as taxable income.
A statutory instrument, The Finance Act 2008, Section 135 (Coronavirus) Order 2020, has now been made to confirm in law that no interest or penalties should be charged in respect of the Government’s permitted deferrals of tax payments which were offered in response to the COVID-19 crisis. This is in line with previous communications from the Government, that no interest or penalties would apply in respect of these specific deferrals, so long as the amounts deferred are paid on or before 31 January 2021 (for July 2020 income tax/Class 4 NIC payments on account, deferred by taxpayers that were finding it difficult to make this payment due to the impact of coronavirus) or 31 March 2021 (for VAT deferred under the special deferral arrangements that applied to amounts due between 20 March and 30 June 2020).
The Insolvency Act 1986 (HMRC Debts: Priority on Insolvency) Regulations 2020 have now been finalised and come into force on 1 December 2020. The Regulations confirm that the following types of tax liabilities owed to HMRC will have secondary preferential status in insolvency procedures: PAYE income tax, Construction Industry Scheme deductions, employee National Insurance contributions and student loan repayments. The primary legislation that brought in these changes via Finance Act 2020 confirmed that VAT will also have secondary preferential status. These Regulations do not specify that any such tax liabilities must have arisen in particular periods in order to obtain preferential status (e.g. in the [X] years pre-appointment). Finance Act 2020 does, however, permit Regulations to be made to this effect but there has been no confirmation yet on what limits, if any, will be enacted.
HMRC have updated their guidance on Land Remediation Relief to confirm that staffing costs reimbursed under the Job Retention Scheme (JRS) will not qualify for Land Remediation Relief as, under the legislation, expenditure that is covered by a grant or subsidy, is not eligible for the relief. If the grant or subsidy only covers part of the expenditure, the balance qualifies for Land Remediation Relief provided it meets all the other conditions.
From 6 April 2020, non-resident corporate landlords (NRCLs) are chargeable to corporation tax instead of income tax on their UK property income. On 4 September 2020, HMRC updated their guidance on quarterly instalment payments (QIPs) to confirm, for the accounting period beginning 6 April 2020, i.e. the NRCL’s first accounting period for corporation tax, the QIPs regime will not apply even if the company is ‘large’ or ‘very large’. The QIPs regime will apply as normal to the next and all subsequent accounting periods. In addition, HMRC have confirmed the application of the QIPs regime to overseas registered companies within the taxation of non-resident gains on UK immovable property (TNRGIP) legislation. Companies subject to TNRGIP usually have a one day accounting period and therefore if their profit or gain exceeds £27,397 (calculated as a proportionate reduction of the £10 million annual limit) for that one day, the company will be ‘large’ or ‘very large’ and so will be liable to pay the tax due by a QIP. It should be noted that where a NRCL sells a property and therefore has a non-resident capital gains liability, this would be within its usual corporation tax accounting period and the one day accounting period point above would not apply.
The UN Model Tax Convention and Commentary is designed as an alternative to the OECD Model and Commentary, specifically aimed at agreements between ‘developed’ and ‘developing’ countries. Over recent months, work has been undertaken to draft a new Article 12B designed as an alternative to the ‘unified approach’ of Pillar 1 of the OECD’s proposals for taxing the digital economy. The draft Article would allow a taxing right on the automated digital services income for the source state (on a gross basis at a rate agreed bilaterally) where the beneficial owner is in another state. Separately, a discussion draft has been published on the possible inclusion of software payments in the definition of Royalties in Article 12, with comments requested by 2 October 2020. Both of these developments are expected to be discussed at the next session of the UN’s Committee of Experts on International Cooperation in Tax Matters, to be held virtually from 20 October to 6 November 2020.
With the recent publication of the BRC-KPMG Retail Sales Monitor, Paul Martin, UK Head of Retail at KPMG, stated “the retail sector continued to show promising signs of recovery in August, with like-for-like retail sales up 4.7 percent compared to last year. Whilst welcome news, the coming months are far from problem free, with economic uncertainties – including the unwinding of the furlough scheme – likely to leave many consumers thinking carefully about their spending priorities”.
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