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AFM Tax Training Day

Spring Statement and other updates

12 June 2019

Agenda

1. Introduction

2. Structures and buildings allowance

3. Apprenticeship Levy

4. CCO

5. MDR

6. Brexit

7. Other points of interest

8 Final thoughts

Alistair Nichol

Tax Associate Partner

Key takeaways

Spring Statement 2019 was the second of its kind under the new ‘tax calendar’.

While focused on the benefits of a Brexit deal, there were some points of interest we will cover today, as well as some other general updates.

Introduction

… when I became Chancellor in 2016 I recognised that, with the progress we had already made, as well as getting Britain’s debt down, our continued success as a nation would depend on investing in our future, supporting our vital public services, and keeping taxes low to attract talent and investment. I called it a ‘balanced approach’. And it is delivering …

Phillip Hammond, Chancellor of the Exchequer – 2019 Spring Statement

“

Introduction


14 June 2016

Brexit referendum

23 June 2016

Introduction (cont.)


12 June 2019

???

21 June 2019

Progress, but not as we know it …

Despite Brexit, which inevitably has had an impact on legislative timetable, progress has been made against many

of the objectives on the roadmap.

While the path being followed isn’t the one that might have been predicted pre-Brexit referendum, the overall direction

and philosophy hasn’t changed.

Structures and buildings allowance

This will improve the UK’s international competitiveness. The UK currently has the

lowest Corporation Tax rate in the G20 – which is set to decrease further to 17% in 2020

– as well as generous tax relief for research and development to support innovation.

The SBA will further reduce the costs of doing business in the UK.

HMRC SBA Technical Note

“

Structures and buildings allowance

A new allowance (SBA) introduced from 29 October 2018.

Applies to new non-residential structures and buildings.

Allowance of 2% straight-line (50 years).

Intention to close a gap in UK Capital Allowance regime.

SBA overview:

► Announced Autumn Budget 2018, Draft legislation included alongside Spring Statement 2019

► Short-consultation on draft legislation (now closed)

► Available for expenditure on structures and buildings (but not expenditure related to land, or plant & machinery)

► 2% / 50 year straight-line tax amortisation

► While apparently simple, some complexity likely to arise in application to ‘real-world’ projects

► Interaction with other taxes (eg, CGT and VAT)

► Available for UK and overseas property providing within charge to UK tax

Note that the SBA regime was partly funded by a reduction in special writing down rate for long-life assets from 8% to 6%.

£1.9billiontax relief budgeted to 2023/2024, offset by £1.6billion saved on long-life asset rate reduction

Budget 2018

Apprenticeship Levy

The Apprenticeship programme is an ambitious

one that no major organisation can ignore.

It will enable employers to:

► Address skills gaps and create a talent pipeline for the future

► Re-skill employees and gain qualifications in response to business changes

► Support social mobility by attracting and retaining people from diverse backgrounds.

EY / Henley Business School

“

Apprenticeship Levy

From 1 April 2019, co-investment rate for new apprenticeships is 5% (was 10%).

Also from 1 April 2019, amount of apprenticeship fund that can be transferred to another employer in the supply chain increased to 25% (was 10%).

Apprenticeship Levy recap:

► Paid if wage bill > £3m

► 0.5% rate

► Reported through PAYE

► Applies to apprentices beginning on/after 1 May 2017

► Levy funds can be used to pay for training (up to band limits)

► Formal process with ongoing operational requirements (not ad hoc)

► Can share funds with other employers within group or in supply chain

► If receiving funds by transfer, must check implications for State Aid (check de minimis over past 3 years)

► Government ‘tops-up’ 10% of PAYE reported Levy (pro rated to English taxpayers)

► Non-Levy paying employers can request ‘co-investment’ from government – in effect employer pays 5/10% of cost

► Funds expire 24 months after first credited to account

3millionnew, high quality apprenticeships created

Spring Statement 2019

Corporate Criminal Offence of

the failure to prevent the facilitation of tax evasion

The Government believes that relevant bodies should be criminally liable where they

fail to prevent those who act for, or on their behalf from criminally facilitating tax

evasion.

HMRC CCO guidance

“

Corporate Criminal Offence

HMRC has a range of cases ‘in pipeline for investigation’.

Concern that organisations may not be able to demonstrate reasonable procedures when investigations commence.

Understanding of ‘extra-territoriality’ and ‘associated persons’ considered areas of risk.

CCO reminder

Risk assessment

Proportionality of reasonable procedures

Top level commitment

Due diligence

Communication (incl. training)

Monitoring and review

‘Reasonable procedures’

Mandatory Disclosure Regime

The Council of the European Union (EU) has

introduced a directive aimed at boosting

transparency to tackle what it sees as aggressive cross-border tax planning. The directive … requires ‘intermediaries’ [or taxpayers] to report transactions and arrangements that are considered by the EU to be potentially aggressive … the information about the arrangements will be automatically exchanged between Member States.

EY EU Mandatory Disclosure Regime (MDR): Understanding the elements of MDR compliance and how to prepare

“

Mandatory Disclosure Regime

EU legislation introduced 25 June 2018.

Final UK legislation expected shortly.

Wide reaching and even ‘purely domestic’ business can have some work to do.

MDR recap:

► Applies to intermediaries and taxpayers

► EU law but implemented locally Reporting of ‘in scope’ transactions from 25 June 2018, though reporting not due until 31 August 2020.

► UK domestic legislation due soon (and must be before 31 December 2019)

► Regime applies to:

► Any (series of) transaction, structure or scheme

► Most taxes (VAT and customs primary exceptions)

► Cross-border (between member states)

► At least one hallmark met

► Reporting obligation with intermediary where there is one, otherwise taxpayer

► Main benefit test for some hallmarks

► But not for others (eg):

► Same asset subject to depreciation in >1 MS

► Multiple claims of relief for double taxation

► Transfer of assets with material difference in price used for tax purpose

DAC6refers to the EU Council Directive 2018/882/EU, the EU legislative framework which requires local implementation of MDR.

Brexit

Where there is change, there is risk, but there is also opportunity. By being prepared, we can embrace those opportunities.

Financial services are critical in supporting both UK and European growth and prosperity. It’s in all our interests to ensure the negotiations and eventual outcome, allows that to continue.

Marcel van Loo

EY EMEIA Financial Services, Regional Managing Partner

“

Brexit

Current Brexit-day: 31 October 2019.

Uncertain political climate (UK and EU) continues to frustrate progress.

‘No deal’ still default result.

Now more than two thirds through our Brexit timetable extension.

Theresa May due to step down on 7 June 2019.

New PM in play ‘by end of July’. New European Commission president will not be in place by 31 October 2019.

Parliament rejected proposed Brexit deal 3 times to date.

Proposed transition period to 31 December 2020, but predicated on withdrawal agreement being ratified. No deal = no transition.

‘Backstop’ intended to ensure Ireland / Northern Ireland border operates effectively.

‘Backstop’ is a key sticking point for UK politicians.

£39bn is the payment due from UK to EU on Brexit deal terms.

Large multinational businesses (mostly) planning on basis Brexit happens, and restructuring accordingly.

142 daysuntil 31 October.

Brexit

HMRC and taxpayers have been assessing the tax implications of Brexit.

Some formal interactions between HMRC and representative bodies for FS firms took place over the last 12 months, resulting in a document shared with CCMs and industry participants.

While not guidance (and therefore not public), topics covered were as expected.

Primary Brexit tax issues:

► Identification and valuation of intangibles transferring through restructuring

► Post-Brexit tax profile

► Post-Brexit transfer pricing

► Deductibility of Brexit related costs

► Interaction with EU-based regimes (ATAD, DAC, BEPS)

► Double tax treaties

► VAT

► TOGC on restructuring

► Fixed establishments post-Brexit

► Cross-border supplies post-Brexit

► Interaction with PESM

► Employment taxes

► Transfer and withholding taxes

Current status of Brexit programmes:

► Insurers with active (open) EU business mostly restructured before 31 March, and operating under new model

► Insurers with closed books only in certain countries (Ireland, Germany) were able to maintain status quo

Other points of interest

The Spring Statement also announced a number of other requests for input or expected consultations. Some of which could be influenced by the final Brexit deal.

Dividend GLO continues to progress without approaching resolution for most taxpayers.

“


IPT operational review announced in Spring Budget.

‘Call for evidence’ issued on 3 June. Reponses due 17 July.

Aim to understand:

► How administration and collection can be modernized and made more efficient

► How unfair tax outcomes can be addressed

Does not consider rates or exemptions.

Request for evidence on potential simplification of VAT Partial Exemption regime and Capital Goods Scheme.

Aim is to make regimes as simple and efficient for taxpayers as possible.

PESMs generally been an area of focus / discussion for a number of insurers over recent years.

Dividend GLO continues to rumble on despite test case reaching conclusion.

HMRC appear to be in a holding pattern still, largely due to the varied nature of the large number of claims submitted.

IPT VAT GLO

Final thoughts

If the trends evident in our report continue then the UK risks becoming “Branch office Britain”, an attractive market to sell to, but not one that companies will commit to manufacture or research and develop in. However, with the right policies in place, the UK could strive to become “Interconnected Britain”.

Mark Gregory, Chief economist – EY UK

“

Final thoughts

How does all of this fit back into the Business Tax Roadmap I referred to at the start?

Making UK more competitive

Countering tax avoidance

Providing incentives for investment

Implementation of BEPS

Modernising the tax administration

SBA

Apprenticeship Levy

CCO

MDR

Brexit


So while the past three years may not have taken the path many expected, the key themes of the Business Tax Roadmap appear to be alive and well even outside the core activities such as Making Tax Digital.

“ Questions or comments?

“ Thank you!

Alistair Nichol

Tax Associate Partner

EY | Assurance | Tax | Transactions | Advisory

Ernst & Young LLP

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