February 2023 / United Kingdom

1 Febbraio 2023

UK Mandatory Disclosure Rules (MDR)

This measure addresses the UK’s implementation of the Organisation for Economic cooperation and Development’s (OECD) Model Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures. On 17 January 2023 the International Tax Enforcement (Disclosable Arrangements) Regulations 2023 were laid before the House of Commons. These regulations implement the Mandatory Disclosure Rules. The regulations come into force on 28 March 2023.

Who is likely to be affected

This measure will affect people who design, market, or advise on certain structures and arrangements that could be used to evade tax. This could include tax advisory and legal firms and financial institutions. The measure could also affect taxpayers who implement such arrangements.

General description of the measure

New rules will require promoters and advisors to disclose details of certain types of arrangements to HMRC. An arrangement will be reportable if it involves the use of opaque offshore structures or if it circumvents reporting under the Common Reporting Standard (CRS). The CRS involves the reporting and exchange between tax authorities of financial account information, to prevent people hiding money offshore. Arrangements which circumvent the CRS or involve the use of opaque offshore structures arrangements can be used to hide beneficial ownership of assets from the tax authorities.

HMRC will share and exchange information on these arrangements with other tax authorities implementing the rules where the taxpayers involved in the arrangement are resident and will use the information received to identify and challenge potential cases of offshore tax non-compliance. These new disclosure rules are also expected to influence taxpayers to help ensure that any relevant structures they implement are reported correctly for tax purposes, with all tax due being declared.

The measure will be implemented by Statutory Instrument. The government consulted on this measure from 30 November 2021 to 8 February 2022.

Policy objective

These new rules will help the government to tackle offshore tax evasion. Mandatory reporting will discourage people from entering into arrangements in the first place if they are intending to use the arrangements to evade tax. HMRC will use information received from these reports to help identify and challenge potential cases of offshore tax evasion.

The Organisation for Economic Co-operation and Development (OECD) rules and exchange framework will replace the existing EU rules now that the UK has left the EU.

Background to the measure

The government worked with other jurisdictions and the OECD to develop the model Mandatory Disclosure Rules (MDR). These model rules allow jurisdictions to take a common approach to implementation and enable exchange of equivalent information between implementing jurisdictions.

The government announced it would implement MDR at Budget 2021 and launched a consultation on draft implementing regulations on 30 November 2021. Following the MDR consultation, the government decided to implement MDR on 28 March 2023.

MDR will replace EU-based DAC6 rules which the UK implemented prior to EU Exit. Now that the transition period has ended, the UK is transitioning to global rather than EU standards on tax transparency. The MDR implementing regulations will simultaneously revoke the EU-based rules in the UK.

Detailed proposal

Operative date

The new rules are due to come into force on 28 March 2023. Existing reporting requirements under DAC6 will apply until the new rules come into force.

Current law

The current law on disclosing arrangements is contained in SI 2020/25, as amended by SI 2020/713 and SI 2020/1649.

Proposed revisions

This measure will replace the existing reporting obligations based on EU rules. The new regulations will implement with the Model Mandatory Disclosure Rules agreed at the OECD. The regulations will impose the reporting obligations, set deadlines for reports to be made, and provide for penalties for non-compliance, along with rights of appeal.

Summary of impacts

Exchequer impact (£m)

2022 to 2023 2023 to 2024 2024 to 2025 2025 to 2026 2026 to 2027 2027 to 2028
Empty Empty Empty Empty Empty Empty

The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at the next fiscal event.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households, and families

This measure is expected to have an impact on individuals who enter into arrangements which are reportable under the regulations. Individuals who are impacted may have to provide information on the arrangements to HMRC. However, in most cases intermediaries will have the reporting obligation so individuals would only have to report in very limited circumstances.

Those individuals who do enter into reportable arrangements and have to report will need to use software to produce files that can be uploaded on the HMRC reporting portal. There is likely to be a cost to individuals in purchasing or developing the necessary software.

Customer experience is expected to remain broadly the same as this measure does not significantly alter how individuals interact with HMRC.

The measure is not expected to impact on family formation, stability, or breakdown.

Equalities impacts

It is not anticipated that there will be impacts for groups sharing protected characteristics.

HMRC will explore any reasonable adjustments needed to allow a disabled individual to make a report.

Impact on business including civil society organisations

This measure will have a negligible impact on an estimated 5,500 businesses who, on behalf of their clients, undertake cross-border arrangements that could impact on the identification of beneficial ownership or on the automatic exchange of information between tax authorities.

One-off costs will include familiarising themselves with the new regime. This will include upskilling some staff when the rules are first introduced. A small number of these businesses will have to report to HMRC under the regulations. These businesses will incur an additional one-off cost that could include making any necessary changes to IT systems to collect and report information.

Continuing costs to businesses could include the preparation, checking and submission of reports to HMRC as well as the payment of subscription fees for software.

Customer experience is expected to remain broadly the same as this measure does not significantly alter how businesses interact with HMRC. Businesses impacted would have been aware of the similar DAC6 measure which MDR is replacing.

This measure is not expected to impact civil society organisations

Operational impact (£m) (HMRC or other)

HMRC will make changes to IT systems:

  • to allow customers to report information to HMRC
  • for HMRC to process the information, exchange it with other jurisdictions, and use it for compliance purposes

There will also be some additional staff costs. Costs are still being finalised but are estimated to total approximately £16m.

Other impacts

A Data Protection Impact Assessment has been undertaken for the changes made by this measure. Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored through reviewing the reports received under the new rules, and through communication with affected taxpayers and advisers.

13 Febbraio 2023

United Kingdom Notes Outcome of Consultation on Abandoned Online Sales Tax

The UK's Treasury has published the responses to its policy consultation on an online sales tax (OST).

The idea of the OST was that such a tax would address concerns arising from the move to a more digital economy; for example, the burden and imbalance of business rates falling disproportionately on retailers with physical properties rather than on online retailers.

Several themes arose from the consultation, such as:

  • concerns about business rates;
  • the high level of taxation in the retail sector;
  • the need for business rates reliefs;
  • the lack of a consensus on defining an OST and concerns about its complexity; and
  • whether the OST liability would be passed on to consumers.

The conclusion of the response document states: "The central challenge identified by respondents was defining taxable revenue from online sales. All proposed definitions risked arbitrary outcomes and considerable complexity for businesses, particularly in light of rapidly evolving business models."

In fact, since the consultation ended in May 2022, the UK government has considered the insights raised and announced at Autumn Statement 2022 that it had decided not to proceed with an OST. The government also announced some reforms to the business rates system.

In deciding not to proceed with the tax, the government noted that the balance of responses suggested that an OST would be complex, distortive, and would not raise sufficient revenue to fund the scale of business rate relief called for. Nor was there widespread support from the retail sector or the public in general. Support was even less pronounced when considering the different forms of OST under review. None of the models discussed would raise sufficient revenue to replace the business rates system or remove business rates liability for the retail sector. However, the government remains committed to the reform of business rates, including a revaluation and support package.

13 Febbraio 2023

United Kingdom Temporarily Increases Rates of Stamp Duty Land Tax

The Stamp Duty Land Tax (Temporary Relief) Act 2023 received Royal Assent and became law on 8 February 2023. This legislation gives effect to the increased thresholds for stamp duty land tax on residential property from 23 September 2022 until 31 March 2025 that were announced in the mini-budget, when Kwasi Kwarteng was Chancellor of the Exchequer.  During the time above, the basic rates for residential property are as follows:
Part of relevant consideration (GBP) Percentage (%)
Up to 250,000 0
250,000 – 925,000 5
925,000 – 1,500,000 10
Over 1,500,000 12
  The higher rates of stamp duty land tax for additional dwellings are:
Part of relevant consideration (GBP) Percentage (%)
Up to 250,000 3
250,000 – 925,000 8
925,000 – 1,500,000 13
Over 1,500,000 15

Rates of stamp duty land tax chargeable in respect of rent are:

Rate bands (GBP) Percentage (%)
0 – 250,000 0
Over 250,000 1

First-time buyers have an increased exemption from tax if the consideration does not exceed GBP 425,000 (previously GBP 300,000) and the 5% rate will apply above this, up to a threshold of GBP 625,000 (previously GBP 500,000).

From 1 April 2025, the rates and thresholds will return to the previous levels.