Tax day: the key points for businesses

Today the Government published their tax policies and consultations for Spring 2021, comprised of an overview Command Paper, eight consultation documents, two calls for evidence, two discussion documents and 13 other reports, reviews and pieces of guidance.

Naturally, it will take some time for the market to digest these and begin to draft responses, but there are some key points for businesses that immediately jump out.

Uncertain tax positions

Large businesses will soon be required to notify HMRC of any uncertain tax positions they take. The implementation date for this had already been pushed back to April 2022 following an initial consultation, and the Government has now taken into account the comments received and has published a revised consultation and summary of responses.

Most significantly, HMRC has accepted that requiring businesses to notify positions that HMRC “may” disagree with is too subjective and is therefore not appropriate. As a result, they are seeking to create objective tests which businesses can use to determine with more clarity whether the position they have taken is “uncertain” under the rules.

Other changes are also positive developments, as the scope has been narrowed (to corporation tax, income tax and VAT), the threshold notification amount has been increased to £5m, penalties will no longer be levied on individuals, but rather on companies themselves (except in certain specific partnership contexts), and no separate return will now be required (which will reduce the compliance burden to some extent).

Questions still remain regarding the scope of this regime, and whether the benefit to HMRC will outweigh the compliance cost to businesses, but HMRC’s desire to engage once again with advisers and taxpayers before proposing draft legislation is a helpful sign.

Transfer pricing

HMRC is seeking to update its transfer pricing documentation requirements. For large businesses within the scope of Country-by-Country Reporting (CbCR) HMRC will request a prescribed standard format for the master and local file. The additional and standardised information is designed to help HMRC focus its interventions and reduce the fact-finding process as well as aiding a more data driven approach to risk assessment. In addition, HMRC is looking at introducing an international dealings schedule (IDS). This new schedule is designed to report transactional data to identify transfer pricing risks by sharing information around the nature and amounts of specific transactions, financial arrangements associated with the transaction, and information on the transfer pricing methodologies applied. The IDS would be a requirement for all UK businesses within scope of transfer pricing, so it would extend to companies outside of the CbCR requirements. Overall, this emphasises that HMRC continues to place a spotlight on transfer pricing as it is often rich hunting ground. For businesses, it presents further administrative burdens to ensure the requisite documentation is in place.

VAT

A number of new VAT proposals are discussed in the Command Paper. Little detail has been given regarding these, but the key announcements are (i) that the Government will not be taking any proposals on VAT grouping further at this time, following the responses received to their call for evidence last year, and (ii) that the following have either been published, or will be published soon:

• proposals to simplify the VAT partial exemption and associated capital goods scheme rules;
• a summary of responses to the consultation regarding VAT refunds and the public sector; and
• a consultation regarding simplification of the land and property VAT rules.

New tax on property developers

A consultation will be published in the next few months regarding a new large residential property developer tax. No details have been given at this stage regarding the proposals, but the intention is for the tax to help pay for the replacement of unsafe cladding on all high rise buildings.

Financial services: competitiveness of the UK securitisation company regime

The special corporation tax rules designed for securitisation companies are under consultation as the government is keen to ensure that the regime remains fit for purpose and competitive. The consultation covers four areas, including retained securitisations, the types of assets that can be securitised, the operation of the note issuance threshold, and the Stamp Duty exemption for loan capital to securitisation arrangements. This is a positive development and highlights the Government’s commitment to making the UK attractive for financial services when viewed with the recent consultation on Asset Holding Companies and the wider funds review.