Other news in brief

On 22 August 2023, HMRC updated the guidance at SAOG10300 in the Senior Accounting Officer (SAO) Guidance manual to include two new taxes in the list of taxes included within the scope of the SAO provisions: the Construction Industry Scheme (CIS) and Land Transaction Tax (LTT). It is uncertain, at this stage, what has triggered this as the underlying SAO legislation has not been updated and the legislative basis for making these changes is unclear. We are currently clarifying the position with HMRC and will provide an update in a future edition of Tax Matters Digest. This is likely to be particularly pertinent to businesses with an SAO filing deadline in September.

Redevco Properties UK 1 Ltd v HMRC [2023] UKFTT 665 (TC) is a case concerning exit charges which were incompatible with EU law and how such a breach should be remedied. The appellant taxpayer ceased to be UK resident for corporation tax purposes and became resident in the Netherlands during 2008. Pursuant to s185 TCGA 1992 a deemed disposal and reacquisition (at market value) of the company’s assets was deemed to take place, resulting in a gain. Additionally, paragraph 10A, schedule 9, FA 1996 applied to the company’s loan relationships giving rise to taxable profits. It was not possible to defer payment of the tax due, which followed the general rule for when it was due and payable (s59D TMA 1970). The application of these provisions were agreed to be a breach of EU law, but there was a dispute as to the appropriate remedy. The taxpayer considered the exit charge provisions should be disapplied. Whereas, HMRC contended that a conforming construction should be applied following Trustees of the P Panayi Accumulation and Maintenance Trusts Nos 1-4 v HMRC [2020] SFTD 209 (Panayi). The decision discusses case law and the approach to conforming construction. Additionally, the principle of judicial comity was covered, which provides that a court of competent jurisdiction should follow the legal conclusions of another’s judgment at the same level unless they consider it to be wrongly decided. Judicial comity was applied here to follow Panayi with a conforming construction of the relevant provisions. This resulted in reading s59D to provide that where the taxpayer’s right of freedom of establishment would otherwise be infringed, corporation tax would be due and payable in five equal annual instalments following the end of the accounting period. Therefore, the taxpayer’s appeal was dismissed.

The HMRC Patent Box Guidance in the Corporate Intangibles Research and Development Manual has been reviewed and revised, with all references to the ‘old rules’ removed. This is because the time limit for companies to submit returns or amendments covering the grandfathering period, which ended on 30 June 2021 has now passed. HMRC have confirmed that the refresh does not represent a change in legislation or policy. The pages were republished on 25 August 2023 with HMRC seeking to provide greater clarity on the information required to prepare the calculations and which steps of the computation are relevant or required for companies with different types of patents. An updated flowchart, example computation and detail around pending patents and how these should be treated if patents were filed before 1 July 2016 were also published on this date.  

On 29 August 2023, HMRC published The Insurance Companies (“The Long-term Business Fixed Capital”) Regulations 2023 in draft for consultation until 26 September. These draft regulations clarify which assets are to be treated as ‘structural assets’ of an insurance company’s long-term business as there is currently uncertainty around the definition of this term. The income and gains from ‘structural assets’ are excluded from trading profits so this will be of interest to life insurance companies and mutual life insurers impacted by this definition. It is relevant for determining how any return from those assets is taxed and also for determining the extent to which group relief for losses can apply between an insurance company and its subsidiaries.    

HMRC have reported that on 15 August 2023, Russia notified the UK that it had suspended substantially all of the UK-Russia Double Taxation Convention as part of action affecting 38 countries. The suspension includes the “treatment of dividends, interest, royalties, capital gains, business profits, employment income and pensions, together with protection against discrimination. The provision for elimination of double taxation has not been fully suspended.” According to HMRC the suspension “likely means that Russia will not honour any agreed limits on what it may tax at source, and that only limited relief from double taxation will be available in Russia”. The UK has asked Russia to reverse the suspension and HMRC confirmed that “the UK considers the treaty to remain in force and is continuing to comply with its terms”. Following this, Russia issued a press release confirming that the partial suspension of tax agreements with “unfriendly jurisdictions” will remain in effect until “the rights of the Russian side are restored or the treaties are denounced”. The Government is considering next steps and has said it will provide further information in due course.

On 3 August 2023, the Bank of England Monetary Policy Committee voted to increase the Bank of England base rate to 5.25 percent from 5 percent. As a result, HMRC interest rates for late and early payments increase. 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 increases from 7.5 percent to 7.75 percent. Interest charged on underpaid quarterly corporation tax instalment payments is calculated as base rate plus 1 percent so this increases to 6.25 percent. These changes came into effect on 14 August 2023 for quarterly instalment payments and came into effect on 22 August 2023 for non-quarterly instalment payments. HMRC have also increased their repayment interest rate for most taxes to 4.25 percent, as it is set at the Bank Rate minus 1 percent, with a 0.5 percent lower limit.

Following the unprecedented changes of the last couple of years with the Great Resignation, Hybrid Working and the Cost-of-Living Crisis - in April this year KPMG asked companies about their evolving approach to reward – and 143 shared their views. In this article, we examine key insights from our respondents, what other employers might learn from their changing approaches to employee reward, and what emerging issues HR teams might put on their ‘to do’ lists.