Finance Bill 2021 Progress
Finance Bill 2021 Progress
An update on the progress of Finance Bill 2021 and overview of the latest Government amendments.
The Committee of the whole House debated selected clauses from Finance Bill 2021 on 19 and 20 April 2021. During this stage clauses, including those on the super-deduction and corporation tax rate changes, were agreed to. Amendments to the Finance Bill drafting on the hybrid mismatch rules and stamp duty land tax (SDLT) relief in Freeports were also proposed by the Government and agreed to. Following the conclusion of the Committee of the whole House, the Public Bill Committee stage has now commenced and is expected to run until no later than 6 May 2021. Further amendments have been proposed by the Government during this stage, including on the extended carry back of trade losses (such that a furnished holiday lettings business is no longer included), late payment and repayment interest for VAT and collective money purchase benefits. Dates for the remaining stages of the Bill are yet to be published.
Hybrid and other mismatches
Finance Bill 2021 included a number of important changes to the UK hybrid mismatch rules which counteract tax mismatches arising from a hybrid instrument, hybrid entity, branch or dual-resident company. During the Committee of the Whole House, the Chancellor proposed certain amendments to ensure that the Finance Bill drafting has its intended effect. The key changes resulting from these amendments are as follows:
- The proposed amendments to the definition of ‘hybrid entity’ have been deleted in their entirety as a result of ‘unintended consequences’. It is intended that a revised provision will instead be included in Finance Bill 2022, with the same effective date of 1 January 2017. This is one of the changes that may result in prior year UK deductions no longer being disallowed, but with no facility to reopen and make the necessary amendments in closed periods. Hence consideration should be given to the impact if prior periods become closed before the revised provision will be enacted. There will also be some uncertainty in applying the rules in the absence of the new revised definition;
- New wording has been proposed which makes a minor clarification to the conditions for one of the corporate rescue circumstances that are being introduced to help prevent certain loan releases becoming taxable for the borrower as a result of a hybrid counteraction;
- An amendment has been made to assist the interpretation of one of the conditions that needs to be met for the new category of inclusion/no deduction deemed dual-inclusion income. This is relevant when determining to what extent a double deduction mismatch should be counteracted, and income is received from an entity in a territory in which it is not within the charge to tax or is within the charge to tax at a nil rate. The amendment applies an existing provision which determines a person’s residence where the territory has no concept of tax residence. This is a reminder that the new rule will not help prevent effective double taxation in all scenarios, hence structures should be reviewed with care;
- The imported mismatch rules can deny a UK deduction where a mismatch arises outside the UK as part of wider arrangements. New wording has been proposed for the replacement of one of the conditions (Condition E). The amendment provides that there should be no disallowance in the UK under the imported mismatches rules to the extent that the mismatch is capable of being counteracted in an overseas territory that has given effect to the OECD report on hybrid mismatches. The amendment makes it clear that there is no requirement for the mismatch to actually be counteracted in the relevant territory; and
- The amendment intended to switch off counteraction in relation to a sub-10 percent participant in a transparent fund has been updated: (i) to ensure that it operates as intended when determining the percentage holding a partner has in a partnership taking into account the interests of connected persons; and (ii) to expand its application to a situation where the relevant fund holds an indirect interest in a hybrid entity that makes payments which give rise to a double deduction mismatch.
Other minor changes have also been made for readability and to ensure consistency with existing provisions.
Freeports: stamp duty land tax relief
Finance Bill 2021 set out the detail as to how SDLT relief on land purchases within Freeport tax sites in England will work. During the Committee of the whole House the Chancellor proposed certain amendments to the Finance Bill drafting to ensure that this SDLT relief is available for property acquisitions in Freeport tax sites which use certain sharia-compliant alternative financing arrangements as well as those using conventional finance, by looking at the use of the land by the ‘relevant person’ rather than the financial institution. These proposed amendments were passed on 19 April 2021.
Extended carry back of trade losses
Finance Bill 2021 provides a temporary extension to the carry-back of trading losses from one year to three years. However, the Government has proposed an amendment to Schedule 2 of the Finance Bill to clarify that relief under Part 1 Schedule 2 to the Bill will not be available to a furnished holiday lettings business that is treated as a trade under section 127 of the Income Tax Act 2007. This amendment was passed by the Public Bill Committee on 22 April 2021.
VAT: Late payment interest and repayment interest
The Government has proposed an amendment to Schedule 28 of the Finance Bill to ensure that repayment interest accrues during a period where HMRC raise a reasonable enquiry or a period where HMRC corrects errors or omissions in a VAT return, thereby ensuring consistency in the operation of repayment interest provisions for VAT, Income Tax Self-Assessment and Corporation Tax.
Finally, Government amendments have been proposed and passed to ensure that the Finance Bill drafting works as intended in respect of collective money purchase benefits.
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