Autumn Tax Administration and Maintenance Day 2021 commentary

In what appears to be rapidly becoming a new tradition, we had the Budget on 27 October and “Tax Administration and Maintenance Day” on 30 November, where HM Treasury and HM Revenue & Customs released consultations shaping future tax policy.

We have grouped the announcements into:

1. Those areas where consultations have been finalised and either draft legislation or further consultations into the area have been announced
2. Those areas where consultations that were expected have been announced with a summary of when consideration should be given to making a response; and
3. Those areas where consultations were expected or recommended but nothing is happening yet.

Finalised consultations

We have listed below areas that we think are of specific interest to those in Financial Services.

• Transfer Pricing
  • The government intends to consult on draft legislation in 2022 to require large businesses (those within the scope of Country-by-Country Reporting) to maintain a master file and local file in-line with OECD Base Erosion and Profit Shifting Action 13, and a supporting Summary Audit Trail.
  • These changes are intended to take effect from April 2023.
  • The government will not at this stage legislate or consult further (but will keep under review) in relation to any form of International Dealings Schedule (“IDS”). Financial Services was recognised as a sector where the IDS may be particularly challenging, given typically large volumes of transactions, and an example of where the administrative burden would be disproportionately high.
  • Please see our article for more detail on the TP announcements.
• R&D Relief report
  • Draft legislation is expected in summer 2022 with subsequent consultation on detailed implementation; legislation is proposed to have effect from April 2023.
  • Sub-contracted work will now only be eligible if the sub-contractor performs the work in the UK or the external worker is paid through a UK payroll.
  • Cloud computing and data services used specifically for R&D will be included.
• Making Tax Digital
  • Companies will need to make corporation tax fully digital by 2026.
  • The direction of travel is that own systems can be linked by digital (but not manual) links as with the existing VAT position.
  • HMRC to work with software providers to provide interface software (as with VAT).
  • Industry groups to be further consulted on any special requirements.
• Tax administration
  • Some further streamlining and review of ongoing enquiry/litigation to be considered.
• Uncertain tax positions
  • Draft legislation has been released which, as expected does not include the controversial “third trigger” of a court or tribunal potentially finding against the taxpayer.
• Banking regulations
  • The government will issue secondary legislation to update the definition of a bank in the existing bank-specific tax rules. This is to bring the rules into line with the Financial Conduct Authority’s (FCA) introduction of the new Investment Firm Prudential Regime (“IFPR”).
  • The hybrid and other mismatches rules will be changed by statutory instrument next year, to extend beyond 31 December 2022 an exemption for certain regulatory capital instruments issued by banks.
  • The government will widen the alternative finance rules to embrace FCA-regulated Home Purchase Plan providers and providers of alternative finance arrangements through FCA-regulated peer-to-peer platforms. The rules allow these products to be treated for tax purposes in the same way as mortgages and loans. The changes will provide a level playing field for banks and other providers of alternative finance products. The effective date will be backdated to 30 November 2021.

• Securitisation companies
  • The government is publishing draft legislation concerning changes derived from responses to the recent consultation on the reform of taxation of securitisations and insurance-linked securities and address several areas where respondents suggested the tax rules should be updated to reflect developments in the current market.
  • The government is also publishing a summary of the responses.

Consultations announced and situations where a response may want to be considered

• IFRS 17 – closing date 22 February 2022

A response should be considered:   

• • To support the spreading of transition where there is a large transitional adjustment (including crucially numbers to back this up).
  • Where the timing of the entity or group transition to IFRS 17 is not in-line with the main wave, especially if looking for the same spreading period as for the main wave. HMRC seem to favour limiting the spreading period to the years left to a particular date (i.e. years left to 31 December 2032).
  • If spreading is particularly required, or not required for non-life insurers as the proposals for spreading are focussed on long-term business at present.

• Pensions charge cap – closing date 18 January 2022
  • Proposals are to amend the 0.75% cap to allow performance fees to be excluded from the cap.
  • Consultation is around how this could be structured to allow investment in illiquid and infrastructure assets, and a response should be considered for groups with significant stakeholder pensions where they feel strongly about either the complexity or the flexibility being proposed.

• Insurance Premium Tax
  • HMRC is set to consult on a Code of Practice for Brokers, around ensuring that offshore insurers are registered to pay IPT.
  • There will be no amendment to either the rules around charging IPT on admin fees charged by intermediaries, or to the frequency or manner of IPT returns.

It is noteworthy that nothing was published in relation to:

• The expected consultation on VAT on investment management fees
• The review of the UK funds regime
• The VAT grouping rules
• And finally…
  • The Office of Tax Simplification (“OTS”) made several recommendations including aligning capital gains and income taxation and reform of inheritance tax which have been kicked into the long grass.
  • More minor and technical changes suggested by the OTS relating to CGT have been adopted.