L-Day 2022
Government publishes draft legislation for Finance Bill 2023 and several consultation responses on L-Day 2022.
Government publishes draft legislation for Finance Bill 2023 and several consultation
On 20 July 2022, ‘L-Day’, the Government published draft legislation for Finance Bill 2022-2023 (commonly referred to as Finance Bill 2023), together with explanatory notes, new consultations, and responses to several consultations. Most measures had been previously announced, including OECD Pillar Two implementation, Transfer Pricing documentation changes, and R&D tax relief reforms. A few measures had not been trailed including draft legislation to restrict certain claims for double taxation relief that took immediate effect from 20 July. Overall, however, there were no dramatic surprises and the recent change of Chancellor and ongoing Conservative leadership race do not appear to have impacted day to day tax policy development, yet.
Notable in its absence was any mention of an Online Sales Tax which was the subject of a consultation that closed on 20 May 2022. We may see an update on this in the Autumn Budget. Also missing was any draft legislation to implement reforms to Alcohol Duty that were the subject of a consultation that closed on 30 January 2022, but the Government did confirm that it is considering the feedback received and will respond in the autumn.
You can find further commentary on some of the key L-Day announcements and the draft Finance Bill 2023 legislation in this edition of Tax Matters Digest as follows:
- L Day: Draft legislation to implement Pillar Two published;
- L Day: Operative date for new UK transfer pricing documentation rules confirmed;
- L-Day: Draft legislation published for R&D tax changes planned for 2023;
- L-Day: For individuals - a stable period for Capital Taxes continues; and
- L-Day: HMRC consultation on collecting data from taxpayers.
In addition to the key announcements noted above, there were a number of other points of note, as set out below.
Double Taxation Relief claim time limits
The concept of utilisation of foreign nominal rate (FNR) tax credits has arisen in EU law based overseas dividend litigation. For historic periods, case law has determined that FNR credits may be due to remedy a breach of EU law in the taxation of overseas dividends. Most recently, the ability to utilise FNR credits in certain circumstances has been considered by the UK Supreme Court in the FII Group Litigation [2021] UKSC 31 and by the First-tier Tribunal in Appellants in the Post Prudential Closure Notice Appeals Group Litigation [2021] UKFTT 459 (TC) (the latter, considering practical aspects relating to claims). It is the developments in this line of cases that a new double tax relief measure appears to restrict.
Draft legislation has been published to restrict the ability to make extended time limit claims for double tax relief (DTR) under section 79 TIOPA 2010 or section 806(2) of ICTA 1988. The restriction concerns DTR claims which are calculated at the FNR (rather than in accordance with domestic principles). Certain exclusions have been brought in, for example, to cover on-going litigation. The measure is relevant to dividend taxation pre-2009 before the UK system changed.
Changes to the Qualifying Asset Holding Companies rules
The draft legislation published included changes to certain aspects of the Qualifying Asset Holding Company (QAHC) regime that was introduced with effect from 1 April this year. The main effect of the changes is to broaden the range of funds that can be ‘qualifying funds’ that are able to own a QAHC, including parallel funds and aggregator funds in certain circumstances. The definition of collective investment scheme has also been broadened to include certain companies and the draft legislation has also extended an anti-fragmentation rule that applies to determining ownership interests in a QAHC. Overall, these changes represent a welcome broadening of the range of funds able to benefit from the regime, but include some complexities that need to be considered.
Homes for Ukraine Sponsorship Scheme
Draft legislation introduces temporary reliefs from the annual tax on enveloped dwellings (with effect from 1 April 2022) and 15 percent stamp duty land tax (with effect from 31 March 2022) for companies, partnerships with corporate members, and collective investment schemes in connection with the provision of accommodation under the ‘Homes for Ukraine’ sponsorship scheme. In addition, the Government is introducing an exemption from Income Tax and Corporation Tax for payments made by local authorities to sponsors under the ‘Homes for Ukraine’ scheme with effect from 14 March 2022.
Air Passenger Duty banding reforms
Draft legislation was published to implement reform to Air Passenger Duty (APD), as announced at Autumn Budget 2021. These reforms aim to bolster UK air connectivity through a 50 percent cut in domestic APD and further align the tax with UK environmental objectives by adding a new ultra-long-haul distance band.
Digitalising Business Rates: Connecting business rates and tax data
The Government has published a consultation on policy and IT options for the digitisation of business rates in England. The Government plans to modernise the current system in order to join up existing tax data with business rates data held across Government. The consultation will run until 30 September 2022.
IFRS 17 (new international accounting standard for insurance contracts) consultation response
The Government has published a summary of responses to its consultation on the detailed design of the Corporation Tax changes in response to the new international accounting standard for insurance contracts, IFRS 17. HMRC have confirmed that, for long-term insurance business, the adjustment to retained earnings at transition will be spread over 10 years for tax purposes. In contrast, there will be no spreading for general insurance business. Regulations will be laid in autumn 2022 in connection with this.
OECD Model Rules for Digital Platforms (MRDP) consultation response
The Government has published the response to its 2021 consultation on the implementation of the OECD Model Reporting Rules for Digital Platforms, which require digital platforms to report details of the income of sellers on their platform to the tax authority and to the sellers. Alongside this the Government has confirmed it will publish draft regulations to implement the new reporting rules for an eight-week technical consultation in September. The new rules will apply from 1 January 2024, with the first reports due by 31 January 2025.
