Other news in brief

Chancellor announces Spring Budget to take place on 15 March 2023

The Chancellor has confirmed the date of the next Spring Budget will be 15 March 2023. The announcement was made in a written ministerial statement which states that “the Office for Budget Responsibility (OBR) will prepare a forecast for 15 March 2023 to accompany a Spring Budget”. This forecast, along with the forecast that accompanied the Chancellor’s Autumn Statement on 17 November 2022, will fill the requirement for the OBR to “produce at least two forecasts in a financial year”.

Finance Bill completes all stages in Lords and now awaits Royal Assent

On 20 December 2022, Autumn Finance Bill 2022 completed all stages in the House of Lords. The House of Lords does not have the power to make any amendments to the Bill due to it being a ‘money bill’ so this stage was a formality only. At the time of writing no date had been published for when Royal Assent will take place.

Scottish Draft Budget 2023 to 2024

On 15 December 2022, the Scottish Government published its Draft Budget 2023 to 2024 and supporting documents. The Deputy First Minister, John Swinney, stated the intention for the measures announced in the Budget was to protect the most vulnerable from cost of living increases, whilst providing sustainable public services and supporting the transition to net zero. The main tax announcement was an increase in the higher rate of income tax from 41p to 42p and an increase in the top rate from 46p to 47p. Additionally, in a widely anticipated move, Mr Swinney followed Westminster and reduced the tax threshold for the top rate from £150,000 to £125,140, whilst freezing the thresholds for the starter, basic, intermediate and higher tax rates. The residential rates and bands for Land and Buildings Transaction Tax will remain frozen for 2023/24. However, there has been an increase in the Additional Dwelling Supplement from 4 percent to 6 percent, which took effect from 16 December 2022. Transitional provisions will apply to a limited number of transactions. In more welcome news for business, the Basic Property Rate for Non-Domestic Rates will remain frozen at the 2022/23 level. Additionally, the Small Business Bonus Scheme will be extended, and non-domestic rates exemptions will be given to businesses for investing in plant and machinery used in onsite renewable energy generation and storage. The proposals will need to be approved by the Scottish Parliament but although governing as a minority administration, the shared policy programme with the Scottish Green Party (the Bute House Agreement) means that the Government’s Budget is likely to pass in its current form.

Draft Welsh Budget 2023 to 2024

On 13 December 2022, the Welsh Government published its Draft Budget 2023 to 2024. Included in the supporting documents is the ‘Tax policy report: December 2022’, which reports on progress in taking forward the Welsh Government’s tax policy priorities. There are three devolved Welsh Taxes: Welsh Rates on Income Tax (WRIT), Land Transaction Tax (LTT) and Landfill Disposals Tax (LDT). The Welsh Government is able to vary the basic, higher and additional Income Tax rates, but has confirmed that it intends to maintain parity between Welsh and English taxpayers. This proposal will need to be confirmed by the Senedd through a motion prior to the agreement of the final Budget 2023 to 2024. Regarding LTT, changes were brought forward from the Budget in response to the changes to Stamp Duty Land Tax in England and took effect from 10 October 2022; no further changes to LTT are included in the Draft Budget. Finally, LDT is proposed to increase in line with RPI with effect from 1 April 2023, as is usual. Following scrutiny of the Draft Budget documentation by Senedd Cymru (Welsh Parliament), the final Budget 2023 to 2024 will be published on 7 March 2023.

Brazil legislates for transfer pricing reforms

On 29 December 2022, the Brazilian Government released a presidential decree that contains legislation to align Brazil’s unique transfer pricing system with the OECD Transfer Pricing Guidelines. We expect this legislation to be transformed into law in the next 120 days. The single biggest change would be the introduction of the arm’s length principle which is absent from the current Brazil transfer pricing rules. The changes also include adopting OECD transfer pricing methods, documentation requirements, and considerable changes to the treatment of intangible assets, financial transactions, and business restructuring. Assuming the legislation is adopted by the Brazilian Parliament, for fiscal year 2023, taxpayers will have a choice whether to apply Brazil’s prior transfer pricing rules or the new OECD-based rules. Beginning 1 January 2024, the application of the new OECD-based rules would be mandatory. More details can be found in an insights article from KPMG in Brazil.

Amendments to the tax rules for Real Estate Investment Trusts

On 9 December 2022, the Chancellor announced in a Written Ministerial Statement that the Government will amend the tax rules for Real Estate Investment Trusts (REITs). With effect from April 2023, new rules will remove the requirement for a REIT to own at least three properties, where they hold a single commercial property worth at least £20 million. The rule that applies to properties disposed of within three years of significant development activity will also be amended to ensure that it operates in line with its original intention.

Consultation response and regulations published on expanding the Investment Transactions List to include cryptoassets

On 9 December 2022, HMRC published a response document in relation to their recent consultation on the expansion of the Investment Transactions List (ITL) for the Investment Management Exemption (IME) and other fund tax regimes. The aim of the proposals consulted on was to expand the ITL in order to remove disincentives from UK investment managers including cryptoassets within portfolios and encourage new cryptoasset businesses to establish themselves in the UK. The response document sets out where the Government has used comments received to inform the design and scope of the policy. The broad policy outcome is the inclusion of cryptoassets on the ITL for the purpose of the IME based on the Crypto Asset Reporting Framework (or ‘CARF’) definition. Protections are included to exclude: (i) certain cryptoassets which result in physical delivery of assets; and (ii) cryptoassets issued by the investment manager or related persons. The changes are potentially significant as the inclusion of cryptoassets on the ITL for the IME means that UK investment managers within the IME can include cryptoassets within portfolios managed on behalf of non-residents without the risk of creating a UK permanent establishment. It is also expected that UK investment managers will launch and manage further cryptoasset fund products as a consequence of the reform. A decision has been made to limit the changes to the ITL for the purpose of the IME, with the possibility of extending the change to other fund tax regimes which use the ITL being kept under review. Regulations were published on 20 December 2022 and the legislation applies to transactions entered into from tax year 2022 to 2023 onwards and accounting periods that include 19 December 2022 onwards. HMRC’s International Manual was also updated at INTM269079A to include guidance on the regulations.

OTS publishes its report on the tax implications of hybrid and distance working

On 20 December 2022, the Office of Tax Simplification (OTS) published its report on the tax implications of hybrid and distance working. The report summarises the observations and recommendations shared by respondents to the OTS’s call for evidence, with a particular focus on steps which could be taken to simplify the administration and supporting guidance underpinning tax compliance for remote workers. Many of the points highlighted in the report were previously referred to in our Tax Matters Digest articles of 14 November 2022 entitled Cross-border hybrid and remote working – what next? and Hybrid and remote working within the UK – what next? The OTS’s report stops short of making its own recommendations on account of time constraints imposed by its closure at the end of the year. We look forward to seeing the Government’s response to the report, possibly as soon as the forthcoming Budget on 15 March 2023.

Public Interest Business Protection Tax extension

Legislation for the new Public Interest Business Protection Tax (PIBPT), which applies to energy retailers in certain circumstances, was introduced in Finance Act 2022. The tax is intended to prevent utility companies (with the potential for the rules to be expanded to other ‘public interest businesses’) from taking steps to monetise large in-the-money hedging commodity contracts, thereby realising a significant gain that is distributed to shareholders but leaving the newly unhedged company in financial difficulties (read more in our previous article). A new Statutory Instrument has now been laid before the House of Commons that will extend the date in the legislation’s ‘sunsetting provision’. Previously this provided that a liability to PIBPT only arises in respect of businesses entering ‘special measures’ before 28 January 2023, however this will now be extended until 30 April 2024.

HMRC late payment interest rates to be revised after Bank of England increases base rate

On 15 December 2022, the Bank of England Monetary Policy Committee voted to increase the Bank of England base rate to 3.5 percent from 3 percent. As a result, HMRC interest rates for late and early payments have increased. HMRC’s late payment interest rate for most taxes is set at the Bank of England base rate plus 2.5 percent so their late payment interest rate has increased from 5.5 percent to 6 percent. Interest charged on underpaid quarterly corporation tax instalment payments is calculated as base rate plus 1 percent so this increased to 4.5 percent. These changes came into effect on 26 December 2022 for quarterly instalment payments and 6 January 2023 for non-quarterly instalment payments. HMRC have also increased their repayment interest rate for most taxes from 6 January 2023 to 2.5 percent, as it is set at Bank Rate minus 1 percent, with a 0.5 percent lower limit. For interest paid on overpaid quarterly instalment payments and on early payments of corporation tax not due by instalments the rate is now 3.25 percent.