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Business Tax Briefing - 05/05/2017


Finance Act 2017
Following Royal Assent last week, the enacted text of Finance Act 2017 has now been published by the National Archives. See http://deloi.tt/2qATnG0.

Work and Pensions Committee and Public Accounts Committee reports published
The House of Commons Work and Pensions Committee released its report Self-employment and the gig economy on 1 May. The report’s recommendations include that the next government should set out a roadmap for equalising the National Insurance contributions made by employees and the self-employed, and that it is incumbent on government to close loopholes that can incentivise behaviour by a minority of companies to use bogus self-employment to pass the burden of safety net support to the welfare state whilst reducing tax revenue. See http://deloi.tt/2p8ATfS.

On 28 April, the Commons Public Accounts Committee released a report titled The HMRC Estate. The report raises questions on the benefits predicted by HMRC from its 10-year plan to reduce 170 offices nationwide to 13 large regional hubs in city centres. See http://deloi.tt/2pwLxzM.

Institute for Fiscal Studies general election briefing note on tax revenues
The Institute for Fiscal Studies (IFS) has published a briefing note providing background material for the upcoming general election on how much UK public revenue is currently raised from different taxes, how this has changed since 2010, and what challenges will be faced by a future government. The IFS expects income tax, NICs and VAT will continue to be the ‘workhorse taxes’, raising about two-thirds of revenues, but it notes that there have been important changes in the relative composition of tax revenues since 2010; for example, income tax is due to raise a lower share of the total and be more reliant on the top 1% of income taxpayers. See http://deloi.tt/2qAQYex.

Dbriefs webcasts

The next Dbriefs webcast is on Tuesday 9 May at 12.00 BST/13.00 CEST. The topic is UK Tax Monthly Update and it is from our UK tax focus series. During the webcast our panel of experts will provide an update on corporate tax, employment tax, and indirect tax. To register for the webcast, click here.

On Wednesday 10 May at 13.00 BST/14.00 CEST there is a webcast from the UK tax focus series titled
To PBIE Or Not To PBIE? Corporate Interest Deductibility – Part 3. Andy Cox will be hosting and during the webcast our panel of experts will discuss the Public Benefit Infrastructure Exemption (PBIE) in the corporate interest restriction rules. In particular, they will consider the application of the rules and where they can create particular challenges. To register for the webcast, click
here. The two previous webcasts on the corporate interest restriction rules are available to view on demand: Part 1 and Part 2.

OECD update on status of country-by-country reporting to tax authorities (BEPS Action 13)
On 4 May, the OECD issued an update on the current implementation status of country-by-country (CbC) reporting to tax authorities – part of Action 13 of the G20/OECD BEPS Project. The update sets out inter alia the progress that has been made to put relationships in place to facilitate the automatic of exchange of CbC reports between different jurisdictions. The OECD reports that over 700 such relationships are now active between over 30 of the signatories to the Multilateral Competent Authority Agreement on the Exchange of CbC Reports (the CbC MCAA) and between EU Member States under the Directive on Administrative Cooperation in Taxation. See http://deloi.tt/2pafKBg.


Appeal against demand for collection of tax debt: taxpayer loses in High Court

The High Court has dismissed a taxpayer’s appeal in Vieira v HMRC. The taxpayer, who carries out a business as a sole trader, had received a statutory demand from HMRC for the collection of income tax, VAT, surcharges, penalties and interest amounts. An application for the demand to be set aside had been made on the basis that the taxpayer disputed the debt and was separately seeking to appeal the underlying tax assessments at the First-tier Tribunal (Tax Chamber).  

The High Court upheld an earlier decision of the Deputy Registrar to dismiss the application to set the demand aside, agreeing that, under the practice directions for insolvency proceedings and associated case law, questions on the validity of the debts arising from the tax assessments lay within the jurisdiction of the tax tribunal, and that the bankruptcy court was precluded from inquiring into them. See http://deloi.tt/2paaltZ.

Cost-sharing exemption: CJEU against Luxembourg’s 70% threshold

The CJEU has ruled that Luxembourg's legislation on the cost-sharing exemption has been drawn too widely. Services supplied by a “cost-sharing group” to its members can be exempt where those services are “directly necessary” for the non-taxable activities of the members. Luxembourg accepted that this test was automatically satisfied where members' exempt activities were more than 70% of their turnover. The CJEU found that this threshold was not compatible with the Principal VAT Directive, and appears to restrict the exemption to those instances where direct attribution can be demonstrated. The Court also ruled that members should not be able to deduct VAT invoiced to their cost-sharing group, and that transactions carried out by a member in its own name but on behalf of the group should not fall outside the scope of VAT. The Court's confirmation that a cost-sharing group should be treated as an entity that is separate from its members is unsurprising. However, the rejection of the de minimis threshold may have an impact in other Member States, including the UK which currently applies a 15% threshold. To discuss the case, please contact Richard Insole on 020 7303 0062.


Brockenhurst College: CJEU judgment on exemption for College’s training restaurant

In Brockenhurst College, the CJEU has ruled that supplies to paying customers in a College training restaurant (or to the audience attending performances in its theatre) were “closely related” to education and should be exempt from VAT. It considered that the services were essential to the education – the restaurant was tantamount to a classroom for the students. It suggested that the purpose of charging for the meals was not to obtain additional income (in competition with commercial restaurants), as the restaurant was only open to people on a mailing list (generally, friends and family of the students), was entirely organised by students, and ran at a significant loss. The appeal will now return to the Court of Appeal for determination, and it is possible that further guidance will be issued by HMRC following the General Election. However, it should be noted that HMRC distinguish between education in higher education institutions (which is exempt) and in further education colleges (where it is frequently non-business). To discuss the case, please contact Stuart Savage on 0113 292 1689.


Colaingrove Ltd: electricity in holiday caravans – Court of Appeal finds for HMRC
The supply of electricity for domestic purposes is subject to 5% VAT. However, does that reduced rate still apply when a fixed charge is made for electricity used when renting a static holiday caravan? Electricity supplied to caravan owners is subject to the reduced rate; but where holidaymakers rent a caravan for a week, any charge for electricity forms only a small part of the overall price for the accommodation. In Colaingrove Ltd, the Court of Appeal has determined that VAT should be charged at 20% on charges for electricity in these circumstances, even if they are separated from the charge for the accommodation. The Court held that the meaning of the relevant UK legislation was plain: where the electricity was part of a composite supply of holiday accommodation, there was no separate supply of electricity to which the reduced rate could be applied. Identifying the electricity as a “concrete and specific” part of a supply did not trump this principle. To discuss the case, please contact Oliver Jarratt on 0121 695 5722.


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This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. Deloitte LLP would be pleased to advise readers on how to apply the principles set out in this publication to their specific circumstances. Deloitte LLP accepts no duty of care or 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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