- Corporate re-domiciliation: consultation on making it easier for companies to move their domicile and relocate to the UK.
- Abolition of cross-border group relief: ending of group relief for UK companies for losses incurred by EEA-resident subsidiaries.
- Reporting of uncertain tax treatments: going ahead from 1 April 2022, but with an important modification.
- Research and development tax credits: regime to be expanded to data and cloud costs, with future legislation expected to ensure relief is limited to activities undertaken in the UK.
- Bank surcharge: reduced from 8% to 3% from 1 April 2023.
- Diverted profits tax (DPT): changes to clarify certain aspects of the review period process and to ensure that the mutual agreement procedure can apply to DPT.
- Annual investment allowance and capital allowances: no change to the rates, including the super-deduction. Annual investment allowance to remain at £1m until 31 March 2023.
- Qualifying asset holding companies: new regime to take effect from 1 April 2022.
- Online sales tax: a consultation expected soon.
- Hybrid entities - treatment of US LLCs: implementation of changes published for comment on 20 July 2021.
- Stamp duty/stamp duty reserve tax: power to make changes to the law in respect of a specific charge on transfers of securities to clearance/depositary receipt systems.
- Carried forward losses: companies in financial distress will be able to set off losses arising from onerous leases.
- Residential property developer tax: new 4% tax from 1 April 2022 on profits made from UK residential property development.
- Tax administration and maintenance: a further set of announcements will be made in the autumn.
Corporate re-domiciliation: The Government's stated objective is to increase the attractiveness and availability of the UK as a destination to locate a business and in which to invest. Currently, it is not possible for a foreign company to transfer its incorporation to the UK. A consultation launched on Budget day proposes a process which would enable the continuity of the company's legal identity and operations including its corporate history, management structure, assets, intellectual and other property rights, contracts, and regulatory approvals. The consultation is open until 07 January 2022.
Abolition of cross-border group relief: The Government proposes to abolish the rules that permit UK companies to claim group relief for losses that have been incurred by foreign subsidiaries in the European Economic Area ("EEA"). On the basis of current legislation, UK companies can in certain limited circumstances claim group relief for losses generated by subsidiary companies established in the EEA when the foreign losses are definitive, i.e. cannot be used elsewhere. The same is broadly true for EEA-resident companies that trade in the UK through a UK Permanent Establishment ("PE").
Now that the UK has exited the European Union, the Government is proposing to end the more favourable group relief rules relating to EEA-resident companies and align them with those applying to other non-UK resident companies. The rules were introduced as a result of case law of the Court of Justice of the European Union (Marks & Spencer, C-446/03). The Government estimates that abolishing the favourable group relief rules should have a negligible impact on the fewer than 100 businesses that are members of groups with loss-making EEA-based subsidiaries.
In terms of timing, it is proposed that the group relief rules are amended with effect for accounting periods ending on or after 27 October 2021. Specific measures will be provided for "straddle" accounting periods.
Reporting of uncertain tax treatments: A new requirement for large businesses with either a turnover of more than £200m per annum or a balance sheet total of over £2bn is due to come into effect on 1 April 2022. An uncertain tax treatment is defined as meeting either of two conditions: (a) a provision has been made in the accounts for the uncertainty; or (b) the tax treatment applied is not in accordance with HMRC’s known position. Businesses will be required to notify HMRC if the tax advantage arising from that treatment exceeds £5m. The new rule has been subject to two rounds of consultation and the original start date of April 2021 was postponed. The proposals have been slightly modified, with one of the reporting triggers (where there is a substantial possibility that a tribunal or court would find the taxpayer’s position to be incorrect in material respects) removed for the time being, but the Government is still considering it for possible inclusion at a later date.
Research and development tax credits: Following an earlier consultation, the Government has decided to expand the definition of qualifying R&D expenditure to include data and cloud costs. The aim is to refocus support towards innovation in the UK, but also to target abuse and improve compliance. Details are not yet available but the changes will take effect from 1 April 2023 and will be legislated for in the Finance Bill 2022-2023.
Bank surcharge: the surcharge is currently set at 8% above, and is payable in addition to, corporation tax at the standard rate of 19%. With the corporation tax rate set to increase to 25% in April 2023, banks were potentially facing a 33% rate. The rate of the surcharge will be reduced to 3% from April 2023, meaning that their combined rate will be 28%. Banking groups currently have an allowance of £25m, which can be assigned to banks within the group, with the surcharge only applying to profits above that threshold. At the same time as the reduction in the surcharge rate, the surcharge allowance will be increased to £100m.
Carried forward losses: the way leases are accounted for under IFRS 16 means that companies in financial distress are denied the exemption from the loss restriction (to 50% of profits) for carried-forward losses that are set against profits arising from lease renegotiations when a lease has become onerous (because the costs of meeting the obligations under the lease exceed the benefits that the company will receive in return). The change means that such companies will be able to obtain full relief, with retrospective effect for accounting periods beginning on or after 1 January 2019.
Diverted profits tax (DPT): Three DPT-related measures were announced. The first is to ensure that where the mutual agreement process (MAP) under a double tax treaty has been used to resolve a double tax dispute, DPT is one of the taxes to which the outcome of the MAP can apply so that relief can be granted. The second change is a technical one in response to a recent decision of the First-tier Tax Tribunal in the case of Vitol Aviation where a company successfully forced HMRC to issue a closure notice and effectively converted a DPT charge into a corporation tax liability. With immediate effect neither final nor partial closure notices may be given until the end of the DPT review period. This means that a DPT charge will be permanent unless a company amends its corporation tax return within the review period. The time period for such an amendment has been increased to 14 months into the review period and such amendments will now be immediately effective.
Annual Investment Allowance (AIA) and capital allowances: The AIA, which all businesses are entitled to claim on their qualifying expenditure for plant and machinery, was set at £200,000 in January 2016 but increased, temporarily, to £1m at Budget 2018. The £1m limit has been extended again, until 31 March 2023, which will coincide with the scheduled end of the super-deduction introduced in the spring 2021 Budget which gives a 130% first-year capital allowance for qualifying plant and machinery assets.
Qualifying asset holding companies: As previously anticipated, the government will legislate in Finance Bill 2021-22 to introduce a regime for the taxation of qualifying asset holding companies (“QAHCs”). This new regime will provide for specific rules for the taxation of QAHCs and certain payments that QAHCs may make. Broadly, the QAHC must be at least 70% owned by diversely-owned funds, or certain institutional investors, and mainly carry out investment activity with no more than insubstantial trading. It has been confirmed that the regime will include a number of advantageous tax provisions for QAHCs, such as exempting gains on disposals of certain shares and overseas property by QAHCs and allowing deductions for certain interest payments that would usually be disallowed as distributions (along with necessary consequential changes to the hybrids rules). The regime will also allow certain amounts paid to qualifying UK remittance basis users by a QAHC to be treated as non-UK source, reflecting the underlying mix of UK and overseas income and gains, which will be welcomed by UK non-domiciled individuals. The new regime will take effect from 1 April 2022.
Separately, the government will also consult on options to simplify the VAT treatment of fund management fees.
Online sales tax: The Government floated the idea of an online sales tax as part of its review of business rates. High-street retailers have lobbied hard recently for business rates reform, particularly in light of the impact of COVID-19 on "bricks and mortar" shops and a general move towards online shopping. It was confirmed in the Budget that a consultation on introducing an online sales tax would be launched shortly, to explore the arguments for and against it.
Hybrid entities - treatment of US LLCs: Currently, the hybrid legislation deems mismatches arising from payments made to a hybrid entity to be because of its hybridity where the entity is not resident in a territory for the purposes of a tax charged at a higher rate than nil, does not have a permanent establishment in a territory in which ordinary income arises, and none of the entity’s income is brought into account for the purposes of the UK controlled foreign company (CFC) charge or a foreign CFC charge. The effect of this deeming provision will now be restricted where the hybrid payee is a company that is treated as transparent in its home own jurisdiction (e.g. disregarded US LLCs). The provision is backdated to 1 January 2017 in so far as it affects new relevant transparent entities as defined.
Stamp duty/stamp duty reserve tax: The standard rate of Stamp Duty and SDRT is 0.5%, but a higher 1.5% rate applies where securities are transferred to a person who provides a clearance service or issues depositary receipts. The Government says that technical changes to allow UK securitisation and insurance-linked securities arrangements to operate more effectively, for example by reducing cost and complexity, may be more appropriately made by secondary legislation than by primary legislation. It is also stated that the new power does not represent an intention to make any particular changes in response to the March 2021 consultation on "Reform of the taxation of securitisation companies", which explored potential reform of aspects of the Corporation Tax regime for securitisations and the Stamp Duty loan capital exemption as it applies to securitisations and to insurance-linked securities. However, the Government wants to have the power to make any necessary changes arising from that consultation.
Residential property developer tax: The Chancellor confirmed the introduction of the Residential Property Developer Tax ("RPDT"), a new tax on company profits derived from UK residential property development. This forms part of the Government’s Building Safety Package, which includes measures such as the removal of unsafe cladding on high-rise residential buildings. The RPDT will apply from 1 April 2022 in relation to accounting periods ending on or after that date.
Broadly, the RPDT will be charged at 4% on profits exceeding an annual allowance of £25 million and will be included in the corporation tax self-assessment returns for any companies liable to the RPDT. Following the Government's recent consultation on the RPDT, the tax will apply to companies with profits that arise from UK residential property development activities where the group's profits from that activity exceed a £25 million allowance per year. Where the allowance is not exceeded, there will be no need to report residential development profits. The allowance can be allocated by the group between companies. Profits in excess of the allowance will be taxed at the 4% rate.
Global tax reform: There were no announcements in the Budget on how the UK plans to implement the OECD/G20 Two-Pillar Plan for global tax reform, so it is not yet clear how soon we might see draft legislation or a consultation. It was announced last week that the US, the UK and several European countries had reached an agreement to retain their digital services taxes until the implementation of Pillar One, but would give credit to US companies during the intervening period (from 1 January 2022 until implementation or 31 December 2023 if earlier) for taxes accrued against corporate income tax liability arising from the new Pillar One taxing right. In return, the US agreed not to apply retaliatory trade sanctions.