Broking Business Winter 2020/2021: Tax issues: stay on top
The Coronavirus Job Retention Scheme (CJRS)The Chancellor announced in December that the CJRS for furloughed employees would be extended until 30 April 2021. The Government confirmed that they would support 80% of wages for hours not worked, up to a maximum of £2,500 per month. Employers have been able to use the scheme, even if they haven’t done so before and regardless of whether or not they’re still open for business. Employers are required to pay national insurance contributions, holiday pay for holidays taken, and pension contributions.
The Government will publish the names of employers who have claimed CJRS since 1 December, grouped by the size of claim. Employers can ask for their names to be withheld where there is a serious risk of violence or intimidation towards individuals. Reinstated Employees are now able to check details of any claims made from that date, via their personal tax account.
HMRC may charge penalties when overpayments are made to companies under coronavirus support schemes that have not been reported to HMRC within 90 days of receipt of the payment. Insurance premium tax (IPT)
ConsultationThe consultation on ways to improve the operation of IPT and make its administration easier for all closed on 5 February. One of its aims is to be stricter on insurers that have not registered for IPT. To reduce the loss of IPT where it is due but is not accounted for by the insurer, brokers may become jointly and severally liable instead.
Anti-avoidance rules are likely to be introduced to counter insurers using various corporate structures to reduce or avoid IPT. The tax may also be payable on administration fees charged by connected insurance brokers and on all fees charged on personal lines business. Such fees have become more common recently, and it’s clear HMRC has concerns in this area.
Post Brexit environmentNow that the Brexit transition period has ended, EU insurers and insureds will be brought in line with those in the rest of world. Where an insurer has no business nor other fixed establishment in the UK and fails to pay IPT due, HMRC can issue liability notices to insureds. This will tell them the insurer is not complying and that they, the insureds, will be liable to pay future IPT if they continue to use the non-compliant insurer.
But from a VAT perspective, intermediaries placing business in respect of risks situated in the UK may see a positive outcome. These risks will fall under the ‘rest of the world’ definition, so they’ll be outside the scope of VAT – with input VAT recovery potential. This may lead to significant increases in partial exemption recovery rates for EU-focused brokers.
Off-payroll rules (IR35)These changes will apply from 6 April 2021, having been delayed from 2020. IR35 already seeks to establish whether an individual is employed or self-employed for tax purposes and applies payroll taxes where relevant, regardless of the legal definition of the contract.
The underlying determination is as before. But the changes mean that, where a contractor uses a personal service company (PSC) or other intermediary entity, the requirement to identify and account for payroll taxes moves from the intermediary entity to the ultimate user of the services (in this case, likely the broking business). This aligns with the existing rules for contractors who do not use an intermediary entity.
From 6 April all medium and large-sized brokers will be responsible for deciding if the rules apply in respect of individuals providing their services through an intermediary, such as contractors. For small brokers, the individual’s intermediary or PSC remains responsible for deciding the individual’s employment status and whether the rules apply.
Diverted profits tax (DPT) and transfer pricing (TP)HMRC has made clear that it believes many multinationals still don’t pay the correct amount of UK tax. DPT at 25% targets contrived arrangements from 1 April 2015, where groups divert profits earned in the UK to another jurisdiction where they pay little or no tax. Often the arrangements or entities used lack economic substance or avoid the creation of a UK taxable presence which would make the foreign company liable for UK corporation tax.
Although TP can be applied legitimately to prevent DPT arising, HMRC has further questioned whether TP policies in some groups are truly representative of the activities undertaken.
As the Government seeks to balance the books, it seems clear this will be a key line of attack for HMRC to raise revenues. It’s likely to focus on TP, avoidance activities and, potentially, expansion of the digital services tax. So large businesses should act now to ensure their policies are valid.
Delays and cancellationsNotification of uncertain tax treatment by large businesses:
Implementation of the notification policy has been postponed to April 2022, which is good news for large businesses. In the meantime, the Government will revise the legislation to clarify the circumstances in which a requirement to report arises, and make its application more objective.
DAC6 cross border disclosuresThe International Tax Enforcement (Disclosable Arrangements) Regulations 2020, came into effect on 1 July 2020, implementing the EU’s DAC6 disclosure requirements. Surprisingly, the trade deal with the EU meant that the UK Government could, and did, cancel the implementation on 31 December 2020. Only arrangements that seek to avoid exchange of information or beneficial ownership (Hallmark D) are now reportable in the UK. Cross border arrangements with other EU countries remain reportable in those jurisdictions.
However, to ensure there is still automatic disclosure of aggressive or abusive tax schemes, the Government will introduce new legislation this year implementing the OECD’s Mandatory Disclosure Rules (MDR).