Legislation day 2022

Below we summarise the areas that may be of interest and link the relevant legislation. Further updates to come as we review the detail of the releases.

OECD Pillar 2 reforms

Mostly a copy of the OECD Model rules, there are a few areas that will require some further attention. In particular we will be looking at the situation where a GloBE loss is created, the potential for an HMRC approved list for domestic minimum tax jurisdictions and how the rules operate for investors in consolidated investment scheme structures. Our current understanding is that revenue will include the investment return on unit linked business.

Introduction of the new multinational top-up tax

Transfer pricing documentation: Master File/Local File

The new legislation applicable for accounting periods beginning on or after 1 April 2023 will make OECD format local and master files mandatory for all businesses in the UK which are within CbCr groups (groups >€750m turnover). This is in line with the changes flagged last year and the subsequent HMRC consultation. Outside of the OECD format files is the requirement to produce a Summary Audit Trial checklist (details still TBC) which is intended to give businesses greater certainty of the standards and rigor HMRC expect within documentation. The announcement also confirmed a “beefed up” penalty provision with a presumed careless error penalty (maximum penalty 30%) in the event a TP investigation leads to additional tax to pay and the OECD format files were not made available to HMRC, The detail of the rules here suggested taxpayers would be well advised to have the documentation in place at the time of signing their tax returns in order to provide adequate penalty protection.

Transfer pricing documentation

Insurance companies and IFRS 17

From an insurance perspective, we were expecting draft legislation on IFRS 17 but instead were given a consultation response. Discussions are ongoing with the Revenue, and we hope to receive legislative guidance soon although we currently anticipate that the legislation as it relates to transfers of business to not be fit for purpose leaving stranded losses in some instances and potentially preventing some transactions from taking place.

R&D tax relief reforms

We can expect the new draft legislation to include data and cloud expenditure within the definition of qualifying R&D expenditure to back modern innovation. The government will push for more compliance to enhance relief within the UK; limiting overseas spending on subcontracted R&D and externally provided workers. This will have a significant impact on many current R&D claim plans

Changes to the Qualifying Assets Holding Companies rules

HMRC aim to diversify the availability of the Qualifying Asset Holding Companies regime (April 2022), making it applicable to a wider range of investment structures, consistent with the original policy rational and subject to safeguards. From 20 July 2022, the existing anti-fragmentation rule (paragraph 4 of Schedule 2, Finance Act 2022) will also apply where interests are held through one of more QAHCs as well as directly in the company concerned.

Improving the administration of Insurance Premium Tax (IPT)

The draft legislation set to improve the administration of IPT will act as anew measure providing HMRC with authority to create a statutory instrument that will move Insurance Premium Tax forms from secondary legislation into a public notice.

Pensions: Relief relating to Net Payment arrangements

From 2024-25, new legislation will allow HMRC to make direct top-up payments to low-earning individuals saving in pension schemes using net pay arrangements. This change has been previously flagged but administrators of pension business will need to make sure that systems can handle the change.

Collective money purchase pension scheme

To improve grey areas in current legislation, the government will now ensure that a collective money purchase pension (that is in the process of winding up) can make certain types of payments without attracting pension tax charges. This was the initial intention from the Government, however there were some gaps in the existing legislation that did not achieve this outcome. The new draft legislation ensures payments made instead of a pension from a collective money purchase pension scheme in the process of winding up should not attract pension tax charges.

Further tax provisions in connection with the Dormant Assets Scheme

The Dormant Assets Scheme will be expanded, and customer duty of care will require advance consideration of the impacts of the change. The amendments are set to cover eligible assets from the pensions, insurance, investment, wealth management, and securities sectors. The published draft legislation guarantees that payments from an authorised reclaim fund are treated for the purposes of income tax. Similarly, it aims to certify that where assets are transferred to an authorised reclaim fund whilst their own was alive, but subsequently passed before the reclamation, the owner will be treated for Inheritance Tax Purposes as still owning the original asset.

More generally...

Taxation of Lump Sum Exit Scheme payments

LSES payments will now be treated as capital in nature and will be subject to capital gains tax (or corporation tax in the case of incorporated entities).

Double taxation relief: Time limit for claims

Amounts calculated by reference to the foreign nominal rate of tax will now not be subject to extended time limit claims, unless the relevant accounting period is under enquiry, or there has been an actual adjustment of UK or foreign tax within the last six years.

Improving the data HMRC collects

The government aims to find a new way of collecting, using, and sharing data. This will ensure the information held by the government is more accurate, providing better insights for policymaking and support from HMRC.

Digitalising Business Rates (DBR): Connecting business rates and tax data

DBR will connect business rates data held across different parts of Government with tax data. This will aid better application of reliefs to support businesses in need.

For the Transfer Pricing Perspective on Legislation Day, please click here.