Tax news

Midweek Tax News

A weekly update on tax matters to 26 May 2020

Midweek Tax News provides you with a succinct overview of the key tax developments that have occurred each week to allow you to stay up-to-date on tax issues that may have an impact on your business. If you would like to discuss an article in more detail, please speak to the relevant contact listed at the end of this issue or to your usual EY contact.
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  • COVID-19 developments and updates

    EY’s summary of the UK Government’s COVID-19 measures and next steps is available here. The document provides comments from across the whole of EY on the key practicalities associated with each of the main measures. It has been updated most recently for the restrictions on certain borrowings under the Coronavirus Large Business Interruption Loan Scheme/Commercial Paper programme and the launch of the Future Fund convertible loan arrangements.

    To assist businesses in staying up to date with global tax-related COVID-19 developments, EY’s Tax COVID-19 Stimulus Tracker provides a snapshot of the policy changes that have been announced in countries around the world. It is regularly updated but supplemented by regular global tax alerts, such as those relating to recent developments in Canada and Italy.

    Update on the Coronavirus Job Retention Scheme (CJRS)

    It has been strongly rumoured that the Chancellor is to provide an update shortly as to the way in which the CJRS will operate from August. Over the weekend, the media reported that firms would have to pay 20-30% of the costs after August, but we are still awaiting details.

    Scotland prevents firms based in tax havens accessing COVID-19 support

    On 20 May, the Scottish Parliament passed Coronavirus (Scotland) (No.2) Bill, which includes rules prohibiting firms based in tax havens from receiving COVID-19 grants which are administered by the Scottish Government. This restriction will not affect applications for national schemes such as the Coronavirus Job Retention Scheme, and the rules only apply to grants applied for after the Bill comes into force (the day after the Bill receives Royal Assent). The restriction applies to persons based in tax havens, subsidiaries with a parent in a tax haven, persons with subsidiaries in a tax haven or persons whose profits may be subject to the tax regime of a tax haven. “Based in” for these purposes includes incorporated in, while “tax haven” means a territory listed on the EU’s list of non-cooperative jurisdictions for tax purposes (currently American Samoa, Cayman Islands, Fiji, Guam, Oman, Palau, Panama, Samoa, Trinidad and Tobago, US Virgin Islands, Vanuatu and the Seychelles).

    Government exemption for COVID-19-related reimbursed home office expenses

    As highlighted last week, the Government has announced that that a temporary income tax and National Insurance exemption will be introduced, under which expenses reimbursed by employers for equipment that is needed for employees to work from home as a result of COVID-19 will not attract tax and NICs liabilities.

    Regulations giving effect to this measure were made on 20 May, and HMRC has now updated its guidance for reimbursing COVID-19 related expenses for office equipment purchased by employees to reflect this change.

    HMRC publishes advices regarding waiving income or donating to charity

    HMRC has published guidance relating to the tax rules on waiving income or donating to charity in light of COVID-19. It states that a ‘waiver of remuneration’ happens when an employee gives up rights to remuneration and gets nothing in return. If an employee and employer agree to a reduction in the employee’s remuneration before they are paid, for example to support company cashflow during the pandemic, then no Income Tax or National Insurance contributions (NICs) will be due on the amount given up - provided that the agreement is not part of any wider arrangement to divert the amount to a particular recipient or a cause.

    Finance Bill amendments in relation to UK loan charge

    Amendments have been introduced to Finance Bill 2020 in relation to the UK loan charge rules for disguised renumeration. In relation to the election for the loan charge to be split over three years, an amendment gives HMRC flexibility to extend the deadline (currently 1 October 2020) if taxpayers are facing difficulties a result of COVID-19. A further amendment allows for the possibility of extending the disapplication of interest in respect of 2018/9 liabilities.

    Government to give VAT from donated PPE to healthcare charities

    The Government has announced that VAT collected on donated personal protective equipment (PPE) will be given to charities supporting the NHS and care workers. VAT is due on assets donated by businesses where they paid and reclaimed VAT when they originally purchased the goods. The Government introduced a temporary zero-rate of VAT on PPE on 1 May. The amount to be donated to charities will reflect the VAT collected on donations made from 1 March until 30 April - the period between PPE donations starting and when the zero-VAT rate became effective. Businesses will have until the end of June 2020 to inform HMRC what VAT they have paid.

    Government introduces Corporate Insolvency and Governance Bill

    On 20 May Government introduced the new Corporate Insolvency and Governance Bill, which aims to assist companies affected by COVID-19 by easing administrative burdens on businesses and helping them avoid insolvency. In addition, the Bill makes temporary changes to the law relating to the governance and regulation of companies and other entities.

    Some of the key aspects of the Bill include:

    • Greater flexibility in the insolvency regime;
    • Temporarily suspension of parts of insolvency law;
    • Temporary easements on company filing requirements and requirements relating to meetings including annual general meetings (AGMs)
    • Temporary relaxations in relation to company meetings, which will allow companies to delay AGMs or hold “closed AGMs” online, and to communicate with members electronically.
  • Brexit update

    Following the publication by the UK Government last week of documents setting out its approach to negotiations on a future relationship with the EU, a paper setting out how the UK will implement the Northern Ireland Protocol “while upholding Northern Ireland’s place in the UK and respecting the Belfast (Good Friday) Agreement” has now been released.

    In a departure from earlier statements, the UK has acknowledged that there will be new administrative requirements for businesses in Northern Ireland, albeit streamlined to the maximum extent, for goods moving from the rest of the UK to Northern Ireland. These new administrative process for traders of goods entering Northern Ireland from the rest of the UK will include new electronic import declaration requirements and safety and security information. For trade travelling from Northern Ireland to the rest of the UK, no checks would be required by the UK.

    With only a month left until the high-level stock taking exercise between the UK and EU and one negotiating round in which to make substantial progress, the pressure is rising on both sides of the Channel. Even if things go smoothly, very little time remains until December where negotiations have to be concluded and the terms of the future relationship ratified on both sides (assuming that the UK will not agree to an extension). We circulated our thoughts on what this means for business planning just before the bank holiday weekend and you can access them here.

    As previously highlighted, last week the UK Government published the UK's new Most Favoured Nation (MFN) tariff schedule, along with brief guidance. Further detail on this is now available in our global alert.

Other UK developments

  • The UK corporate criminal offence of failing to prevent the facilitation of tax evasion – the evolving response following the first investigations: reminder of webcast 2 June

    As a reminder, our webcast on 2 June at 2:00pm, featuring Sam Dean, CCO Lead at HMRC, will cover:

    • A brief reminder of the rules, including key definitions, how non-UK companies could be prosecuted and examples of risks
    • Experiences to date of embedding ‘reasonable procedures’ to ensure a defence is in place
    • HMRC activity – HMRC will explain how it is responding to the rules and share learnings from the first investigations
    • The potential impact of COVID-19 on the tax evasion risk environment in which businesses are operating

    To register to join this webcast, please click here.

  • Court of Appeal confirms that IFRS 2 debits are a deductible trading expense

    The Court of Appeal, in dismissing HMRC’s appeal in the case of NCL Investments Limited, has held that trading deductions were available to the taxpayers for accounting debits relating to the grant of share options to their employees.

    The taxpayer companies were both members of a group which operated an incentive scheme whereby employees were granted options over shares in the parent company. As required by IFRS 2, debits were recognised on the grant of the options. The provisions of Part 12 CTA 2009 provide relief in respect of certain employee share acquisitions, however relief for options does not become available until the option is exercised. The legislation considered by the judgment has been revised but the case is still interesting for its approach.

    HMRC argued, as it did before the Upper Tribunal and First-tier Tribunal, that the IFRS 2 debits were not expenses “incurred wholly and exclusively for the purposes of the taxpayer's trade” as required under section 54(1)(a) CTA 2009; that the debits were capital in nature and that s1290 CTA 2009 (which restricts corporation tax deductions in respect of “employee benefit contributions” until “qualifying benefits” have been provided) applied to prevent a deduction. The Court considered four key issues: the “incurred” issue, the “purpose” issue, the “capital” issue, and the effect of s1290.

    With respect to the “incurred” issue, the Court found that it was sufficient that the debit in respect of the options was required by IFRS 2. The use of "incurred" did not impose any additional requirement.

    With regard to “purpose” the Court found that the debits in this case were required by IFRS 2 to reflect the consumption by the taxpayers of the services provided by the employees. The taxpayers consumed those services wholly and exclusively for the purposes of their trades. Therefore the purposes requirement of section 54(1)(a) was satisfied. The Court then used a similar analysis to determine that the debits represented revenue, not capital, items.

    In respect of the application of s1290, the issue turned on whether the grant of the share options amounted to an ‘employee benefit contribution’. Section 1291 states that an employee benefit contribution is made where property is “is held, or may be used, under an employee benefit scheme ”. HMRC argued that the Trustee would hold shares which “may be used” to fulfil its obligations to the option-holders, and that accordingly the grant of options by the Trustee were employee benefit contributions, with the result that no deduction should be allowable in respect of the relevant debits in the taxpayers' profit and loss accounts. However, the Court disagreed, taking the view that the benefit received by the employees was the option itself, rather than the acquisition of shares on exercise of that option. As such, it concluded that s1290 should not apply to deny or defer allowance of the IFRS 2 debits in this case.

  • Supreme Court considers interaction between UK domestic deeming tax provisions and tax treaty articles

    In the case of Fowler, the Supreme Court has considered the question of where a South African tax resident diver should be taxed on earnings from diving in UK waters.

    HMRC argued that the income which Mr Fowler earned from diving engagements was subject to UK taxation. The double taxation treaty between the UK and South Africa provides for employment income to be taxed in the place where it is earned, in the present case in the UK, but for the earnings of self-employed persons to be taxed only where they are resident, in Mr Fowler’s case in South Africa.

    However, Section 15(2) ITTOIA 2005 requires the performance of employment duties as a diver to be treated for income tax purposes as the carrying on of a trade in the United Kingdom. The question to be determined was which article of the Treaty applied to Mr Fowler’s diving activities: Article 7 (business profits) or Article 14 (employment income). The Court considered that this depended upon the “true construction of those articles” in the context of the Treaty as a whole, with the meaning of terms within those articles determined by Article 3(2) by reference to UK income tax law.

    The Court noted that nothing in the Treaty requires Articles 7 and 14 to be applied to deemed situations which might be created by UK income tax legislation. The Court found that Mr Fowler’s remuneration plainly constituted employment income within sections 6 and 7 ITEPA 2003 and that UK tax law would not regard him as making profits from a trade, or his business as being that of an establishment. Section 15 ITTOIA was found not to change the meaning of the term ‘employment’, rather it provides that income is to be taxed as if it were profits of a trade. The Court concluded that the Mr Fowler’s income was employment income which falls within Article 14 of the UK/South Africa treaty (as interpreted under UK law) and that therefore the UK had taxing rights.

    Although the case has specific application only to a very narrow sector, the Supreme Court’s decision and analysis of the interaction between domestic deeming provisions and competing tax treaty articles, may be of wider relevance.

  • Supreme Court finds that retailers are not liable for additional business rates on ATMs

    In the case of Cardtronics UK Ltd & Ors v Sykes & Ors, the Supreme Court has considered the treatment for rating purposes of ATMs situated in supermarkets or shops owned and operated by the retailers. There were two main issues: whether the sites of the ATMs should be identified as separate ‘hereditaments’ from the stores for business rates; and, if so, who was in rateable occupation of the separate hereditaments. ‘Hereditaments’ are defined in s115(1) of the General Rate Act 1967 (“the 1967 Act”) as “property which is or may become liable to a rate, being a unit of such property which is, or would fall to be, shown as a separate item on the valuation list”.

    The ATMs were installed and operated not directly by the retailers but under contractual arrangements with related banking companies. The ATMs fell into four categories: internal ATMs within stores, external ATMs on the exterior walls of stores, convenience store ATMs and moveable ATMs.

    In respect of the first question, the Court held that the Upper Tribunal had been entitled to conclude that the ATMs, with the exception of the moveable ATMs, were sufficiently self-contained to constitute separate ‘hereditaments’ for business rates purposes.

    With respect to the question of whether the retailers or the banks were in rateable occupation of the ATMs, the Court concluded that, even though banks had rights which substantially restricted the retailers’ use of those sites, both the parties derived a direct benefit from the use of the sites for the same purpose. The Court considered this to be sufficient to support the conclusion that the ATMs remained in the occupation of the retailers and that the retailers were not liable to pay additional business rates on the ATMs.

  • EY Absolute Insights: closing the mid-market risk gap

    One of the areas the current pandemic has highlighted is the need for those running mid-market companies to consider how they might improve business resilience through increased risk management. The mid-market faces a particular challenge when it comes to managing risk. Very large organisations face major and complex risks but have the operating resources and structures to deal with them. At the other end of the scale, small businesses face fewer, simpler risks and often cope accordingly. But mid-market companies often face risks on a par with large enterprises, while their resources and structures remain closer to that of a small business. This mid-market risk gap is something that the business leadership can work together to eliminate.

    The next in our series of insights from EY Absolute looks at five key areas that can build business resilience. You can access the briefing here and sign up for future insights.

Other International developments

  • Developments on BEPS 2.0 in the new economic environment: webcast 28 May

    As a reminder, on 28 May at 2:00pm, we will host a global webcast which will focus on the current developments with respect to the BEPS 2.0 project and current country actions with respect to digital service taxes (DSTs), and which will look at how the global health crisis and economic downturn is affecting country activity in both areas.

    The webcast will cover:

    • The latest developments on BEPS 2.0 and OECD plans going forward
    • Country activity implementing new and expanded DSTs
    • Country perspectives on BEPS 2.0 and DSTs in light of the new economic environment
    • What these developments mean for businesses

    To register for this webcast, please click here.

  • COVID-19 - Beyond headline legal, people and trade stimulus measures: webcast 2 June

    Approximately US $20 trillion in stimulus measures have now been announced globally. Businesses are now looking beyond headline stimulus measures to ensure they are availing themselves of government policies designed to provide relief and support for business during this time.

    In this webcast, at 3:00pm on 2 June, our panel of EY experts will reflect on insights provided in the series of Government Responses Trackers available on The panellists from EY Law, People Advisory Services, Trade and Transfer Pricing will discuss the actions governments around the globe are taking in response to the COVID-19 crisis and explore how corporate entities around the world are responding. Topics will include Labour and employment law issues; The Force Majeure clause; Global mobility and immigration issues; Global trade considerations; and Transfer pricing considerations.

    To register for this webcast, please click here.

  • Japanese-language COVID-19 webcast for Japanese companies in Europe: webcast 29 May

    On Friday, May 29 at 11:00AM (UK time)/7:00PM (JST), we are hosting a Japanese-language webinar on the impact of COVID-19, which has been specifically designed for Japanese businesses with operations in Europe.

    Topics will include:

    • Regional specifics in UK, Netherlands and Germany
    • COVID-19 and its impact on secondments, people mobility and teleworking
    • Dealing with supply chain and transfer pricing issues
    • A perspective from Japan on Europe: Strategy, Supply chain and Finance

    Please note that the webinar will be in the Japanese language but the invitation and registration page are in both English and Japanese.

    To register to join this webcast, please click here.

  • Other global tax alerts

    Please see links to a selection of our tax alerts in respect of the following non COVID-19 developments. COVID-19 developments are best tracked through the Tax COVID-19 Stimulus Tracker but global alerts on those developments and additional articles are available in our global tax alert library.

    India: The Indian Central Board of Direct Taxes has amended its Mutual Agreement Procedure (MAP) rules to improve compliance with BEPS Action 14. The amendments are in response to the recommendations of the Organisation for Economic Co-operation and Development’s (OECD) peer review report on India1 with respect to Action 14 (making dispute resolution mechanisms more effective) (the OECD Peer Review Report).

Other publications

Please speak to your usual EY contact, or email us at, if you would like to receive a copy of our regular indirect tax newsletter or our employment, reward and mobility newsletter, as well as information about our other publications.

Further information

If you would like to discuss any of the articles in this week's edition of Midweek Tax News, please contact the individuals listed below, Claire Hooper (+44 20 7951 2486), or your usual EY contact.

COVID-19 developments and updates
Mike Gibson (+44 20 7951 0568)

Brexit update
Sally Jones (+44 20 7951 7728)

For other queries or comments please email