UK Tax Round Up - September 2020

• Published date: 29 September 2020
• Subject Matter: Tax, Income Tax, Sales Taxes: VAT, GST
• Law Firm: Proskauer Rose LLP
• Author: Mr Robert Gaut, Stephen Pevsner and Catherine Sear

UK COVID-19 DEVELOPMENTS

Budget Cancelled

The Government announced on 23rd September that the Budget scheduled for November would, as a result of the ongoing Covid-19 pandemic, now not take place.

R&D tax relief and creative industry tax reliefs - HMRC guidance

HMRC has updated its guidance in relation to (a) research and development relief and research and development expenditure credit and (b) creative industry reliefs (such as film tax relief, video games tax relief, orchestra tax relief and theatre tax relief). In all cases, those reliefs are not available to the extent that the expenditure comprises payments to furloughed employees. This is perhaps an inevitable and logical result, given that the relevant employees are prohibited from working for the relevant employer during the furlough period and so cannot have been involved in the relevant qualifying activity, whether that was research and development or one of the creative industry qualifying activities.

VALUE ADDED TAX

Call for evidence on VAT grouping rules

HMRC has issued a call for evidence from interested parties on the current UK VAT group regime. This focuses on three questions. First, whether VAT grouping should be automatic rather than voluntary where a corporate group is established. Second, whether current restrictions on what types of business can form part of a group should be relaxed (for example how limited partnerships are treated). Finally, views are sought on the "whole establishment" provisions, which provides all branches or fixed establishments of an eligible person are treated as included provided there is at least one fixed establishment or head office in the UK.

Treatment of payments on early termination of contract

As highlighted in our Tax Blog earlier this month, in the light of the European Court of Justice's (ECJ) rulings in Meo and Vodafone Portugal, HMRC has updated its guidance stating that payments arising out of early contract termination will now be treated as consideration for a taxable supply and therefore subject to VAT. This marks a significant change from HMRC's previous position that early termination payments described as compensation payments would ordinarily not be subject to VAT.

Newey - VAT Case on Avoidance

The case of Newey (Newey v HMRC [2020] UKFTT 366 (TC) (14 September 2020)) has continued its tour of the court system by returning to the First Tier Tribunal ("FTT") where it started its journey over ten years ago. By way of reminder, the case...