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Monthly Tax Update - 17/03/2017

Budget Wednesday 8 March 2017
A reminder that full comment on the Chancellor’s Budget delivered on Wednesday 8 March is available at our website:

The Institute for Fiscal Studies held its post-Budget Analysis on 9 March. The slides from the presentations are now available at

Chancellor confirms Government will not proceed with Class 4 NICs changes
The Chancellor has confirmed that the Government will not proceed with the proposals to increase Class 4 National Insurance Contributions (NICs) from 2018, announced in the Budget on 8 March 2017.  The Chancellor stated: ‘For the avoidance of doubt, and as I set out in the Budget, we will go ahead with the abolition of Class 2 national insurance contributions from April 2018. Class 2 is an outdated and regressive tax, and it remains right that it should go. I will set out in the autumn Budget further measures to fund, in full, today’s decision.’ The Government will await the report from Matthew Taylor on the future of employment, consider its overall approach to employment status and rights to tax and entitlement and bring forward further proposals. It will not however bring forward increases to NICs later in this Parliament. See

Finance Bill to be published on 20 March 2017
Financial Secretary to the Treasury Jane Ellison has confirmed that the Finance Bill 2017 will be published on 20 March.

EU ATAD 2: amendments to hybrid mismatch rules
At the December 2016 European Council’s Economic and Financial Affairs Council (ECOFIN) meeting, agreement was reached on the amendments to the Anti-Tax Avoidance Directive (ATAD) to cover hybrid mismatches in accordance with Action 2 of the OECD’s BEPS project. The new text is a combination of a Presidential compromise and optional additional wording to protect financial traders and the regulatory capital of banks and insurers. See our special bulletin here

Off-payroll working in the public sector: guidance note; HMRC Employment Status Service
At Autumn Statement 2016 the Government confirmed that proposed new measures on off-payroll working in the public sector will apply to payments made on or after 6 April 2017. If work is completed before 6 April but payment made on or after 6 April, the payment will be within the scope of the new legislation. HMRC have published a note on off-payroll working in the public sector intended to help agents and others providing advice to contractors who carry out work for a public authority client whilst working through an intermediary (normally their own company) or a Managed Service Company (MSC). The main focus is the implications for Personal Service Companies (PSCs) but the same rules will generally apply where the intermediary is an individual, or a partnership. See

HMRC have also released their Employment Status Service which gives HMRC's view on whether:
       the intermediaries legislation (IR35) applies to an engagement; and
       a worker should pay tax through PAYE for an engagement.

HMRC state that they will stand by the result given, unless a compliance check finds the information provided is inaccurate. See

Cash pooling: HMRC guidance
HMRC have published guidance on the transfer pricing aspects of cash pooling arrangements. The guidance covers, amongst other things, the setting of appropriate interest rates, the sharing of benefits and the consequences of netting balances. See our special bulletin for more detail here.

Corporate interest restriction: draft regulations
Following the draft legislation on corporate interest restriction (CIR) published on 26 January 2017, which take effect from 1 April and will limit the tax relief that large multinational businesses can claim for interest and other financing expenses, regulations are needed to ensure the rules relating to collective investment vehicles and securitisation companies continue to operate as intended under the CIR rules. On 21 February, HM Revenue & Customs (HMRC) published draft regulations, together with a draft explanatory memorandum. Comments on these are invited by 18 April. See

Dbriefs webcasts
There are a number of Dbriefs webcasts over the next month covering such topics as A Closer Look At The GCC VAT Treaty and UK Tax Monthly Update (April). For more information visit

HMRC Spotlights 35 & 36: disguised remuneration
HMRC have published Spotlight 35 – Disguised remuneration: tax avoidance using annuities and Spotlight 36 – Disguised remuneration: schemes to avoid the loan charge. Spotlight schemes are generally those about which HMRC think there is the greatest need to warn potential users.
Spotlight 35 explains that the scheme in question is mainly aimed at contractors. The scheme user is paid in two parts. The first part is a small salary on which there is little or no income tax or National Insurance Contributions liability. The second part is claimed to be non-taxable, as being a capital payment for a deferred annuity. HMRC say that schemes involving annuities are within the scope of the proposed new loan charge, which will apply to all outstanding disguised remuneration loans on 5 April 2019. See
Spotlight 36 explains that some promoters claim to have come up with schemes that enable users to avoid the proposed new loan charge. HMRC will investigate any attempts to avoid the charge. For transactions taking place after 16 July 2013, HMRC will consider whether the General Anti-Abuse Rule (GAAR) may apply. After 14 September 2016, transactions where the GAAR applies will be subject to a 60% GAAR penalty. See

VAT: Advocate-General’s Opinions on cost sharing exemptions
Advocate-General (AG) Julianne Kokott to the Court of Justice of the European Union (CJEU) has released her opinions in two cases concerning the cost sharing exemption, which should allow a cost sharing group (CSG), established by organisations that cannot recover VAT, to exempt supplies it makes to its members.

In the first case, DNB Banka, she suggested that the exemption in the Principal VAT Directive (PVD) could be relied upon directly by taxpayers, even if had not been transposed into national law. However, the CSG had to be an entity that was potentially a taxable person in its own right – DNB Banka could not claim the exemption based only on common membership of a corporate group. Furthermore, if the CSG made a profit on charges to its members (even a modest profit which was required by national direct tax rules) it could not apply the exemption. These findings would have defeated DNB Banka’s claim but the AG also raised a more fundamental objection. In her view, the exemption should only apply to public interest exemptions and was not available to financial services organisations. See

In her opinion in Aviva, AG Kokott elaborated her views on the scope of the cost sharing exemption. The original proposal for the exemption had been limited to CSGs that supported doctors. By the time the Sixth Directive was adopted in 1977, the wording of the exemption had been extended to include CSGs which supported any organisation that could not recover input tax. However, the exemption remained within (what is now) Article 132 PVD, which concerns exemptions granted for public interest reasons (such as healthcare and education). In the scheme of the Directive, AG Kokott suggested that the CSG exemption operated as an extension to the public interest exemptions and there was no basis to extend it to businesses in the insurance sector (and other sectors which claim exemption under Article 135 PVD). In any event, she continued, the exemption could not apply to cross-border CSGs. Therefore, the exemption could not apply to a European Economic Interest Grouping established by Aviva to provide shared services to members in 12 different countries (including Poland, which had referred the questions to the CJEU). In the light of these views, the AG’s opinion that CSGs should not in principle be subject to distortion of competition and that national law does not need to expand on Article 132(1)(f) when enacting it, will be of little comfort. If the full court follows the AG’s Opinion, then it will restrict the scope of the cost sharing exemption to far fewer cases than either the European Commission or many Member States consider appropriate. See

To discuss either case, please contact Richard Insole on 020 7007 0062.

This publication has been written in general terms and we recommend that you obtain professional advice before acting or refraining from action on any of the contents of this publication. Deloitte LLP accepts no liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.

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