July 2023 / United Kingdom

The UK Treasury has announced the tax measures (noted below) that are likely to be included in the next Finance Bill. Advance notice of the legislation is in accordance with the Tax Policy Making Framework, although the final contents of the Bill will be a decision for the Chancellor of the Exchequer. Early publication of the proposals allows time for technical consultation and warns taxpayers of future tax policy changes.

The United Kingdom's tax authority, His Majesty's Revenue and Customs (HMRC), has published draft legislation and associated documents relating to the following areas and topics.

Individual income tax

• Extending the time limit to notify a grant of options under the enterprise management incentive scheme.
• Abolishing the pensions lifetime allowance.
• Making amendments to tax relief at source for pension contributions.

Corporation tax

• Additional tax reliefs for research and development (R&D) intensive small and medium-sized enterprises and potential merged R&D schemes.
• Administrative changes to creative industry tax reliefs.
• Clarifications of the rules for cultural tax reliefs.
• Reform of audiovisual creative tax reliefs to expenditure credits.
• Increasing the capital allowance limits for leasing into tonnage tax.
• Tonnage tax elections to include third party ship managers.
• Tax exemption for corporate recipients of compensation payments under the Post Office compensation schemes.
• Further amendments to the real estate investment trust regime.

Inheritance tax

• Changes to the geographical scope of agricultural property relief and woodlands relief.

Vehicle excise duty

• Exemption for Ukrainian vehicles in the United Kingdom.

Miscellaneous

• Change to data HMRC collects from customers.
• Dealing with promoters of tax avoidance.
• Increasing the maximum prison term for tax fraud from 5 to 7 years.
• Multinational top-up tax: adoption of the undertaxed profits rule and other amendments.

If enacted, most of the legislative measures will come into force from January or April 2024. Consultation on the draft legislation ends on 12 September 2023.

Context

Research and Development (R&D) tax relief aims to support innovative projects in science and technology, fostering economic growth in the UK.

R&D Tax Relief Schemes

HMRC administers two R&D tax relief schemes - one for small and medium-sized enterprises (SMEs) and the other for large companies and ineligible SMEs (RDEC). The number of R&D claims has been increasing over the years.

Qualification for R&D Tax Relief

To be eligible for R&D tax relief, the work must be part of a specific project to make an advance in science or technology. Claims cannot be made for projects in arts, humanities, or social sciences. The work must be related to the company's trade and seek to resolve a scientific or technological uncertainty.

Government Action on Non-Compliance

Concern over abuse and boundary-pushing involving R&D tax reliefs has grown in recent years, particularly amongst SMEs. The government launched a review of the R&D tax relief schemes in 2021, aiming to ensure effective use of taxpayer money and maintain the UK's competitiveness in cutting-edge research.

Operational Changes

HMRC has increased efforts to combat non-compliance, doubling the number of staff working on R&D compliance and creating an R&D Anti-Abuse Unit. Additional measures, including payment identification controls, aim to expedite legitimate claims.

Policy Changes

The government has announced new policy measures to counter non-compliance, some already in place with others taking effect from August 2023. These measures include requiring digital claims, additional information for higher-risk claims, and limiting relief for offshore companies. Proactive outreach to new customers and limited opportunities sectors is also planned.

Changes from August 2023

HMRC will risk assess all claims, receiving more data on individual claims. Claimants or their R&D advisers will complete an additional information form to help HMRC assess the claim's validity and the expertise level of any R&D agent used in preparation.

Full report available here: HMRC’s approach to Research and Development tax reliefs

• Ministers are urging employers to do more to keep workers healthy and reduce the numbers out of work due to long-term sickness
• Consultation launching on measures to increase employer uptake and widen reach of Occupational Health
• Plans include a new standard for businesses to adopt to boost health in the workplace
• Better workplace support expected to grow the economy and tackle inactivity by improving productivity and preventing health-related job losses

The Department for Work and Pensions (DWP) and Department of Health and Social Care (DHSC) have published a consultation on ways to increase uptake of Occupational Health provision.

Employers will be encouraged to take up Occupational Health offers to help employees access vital mental and physical health support at work, particularly for those working in small and medium-sized enterprises.

These proposals include introducing a national “health at work” standard for all employers to provide a baseline for quality Occupational Health provision, which includes guidance, an option to pursue accreditation, and additional government support services – for example outreach workers to support SMEs to meet the standards.

It also seeks views on developing longer-term workforce capacity to help meet any increased demand for Occupational Health services in the future by:

• Encouraging NHS leavers or those who are considering a career change to pivot towards the Occupational Health specialism
• Developing a longer-term, multi-disciplinary workforce to provide Occupational Health services

The consultation will also ask employers to share their examples of good Occupational Health provision to help inform other businesses and encourage them to provide the same.

Secretary of State for Work and Pensions, Mel Stride MP, said:

This Government is investing billions in getting people back to work and growing the economy. We need employers to keep playing their part too.

Healthy businesses need healthy workers – employers will benefit from higher retention rates, more productive workers, and fewer work days lost due to sickness. Improving health in the workplace is a vital piece of the puzzle in our drive to increase employment.

Minister for Disabled People, Health and Work, Tom Pursglove MP, said:

Long-term sickness is a huge contributor to economic inactivity, and while of course some people are unable to work, better accommodation of health problems in the workplace will open up a wider workforce to employers and support employees with a range of needs.

Many small and medium-sized business owners already invest significantly in the health and wellbeing of their workforce, but this will be a gamechanger in identifying and removing obstacles to people with health conditions starting, staying and succeeding in work.

To also help keep people in work, the government will today also publish a separate consultation looking at options to increase investment in Occupational Health services by UK wide employers through the tax system. This follows its announcement at the Spring Budget where it committed to consult on incentivising greater provision of Occupational Health through the tax system.

The government wants to explore the case for providing additional tax relief to businesses on their Occupational Health costs. In particular, the consultation asks respondents for their experiences of providing Occupational Health, including what services they provide and any barriers they experience. It also asks for evidence on the effectiveness of existing tax incentives and asks respondents for their views on the merits of expanding the existing Benefit-in-Kind relief, and thoughts on any alternative tax incentives.

Tax reliefs on Benefits-in-Kind are already available for certain occupational health services. This consultation will test if expanding these reliefs or introducing new ones could be an effective lever to achieve greater Occupational Health provision, as well as thoughts on any alternative tax incentives. The consultation will determine if expanding tax incentives is an appropriate measure to boost Occupational Health provision.

This is all a key component of the measures in the 2023 Spring Budget to grow labour market participation, reduce economic inactivity and get more people into work. The Department is helping millions to return to work with inactivity falling by 360,000 since the peak of the pandemic.

Long-term sickness is currently the main reason people of working-age give for being economically inactive, but just under half of workers have access to Occupational Health services. Over 90% of large employers offer Occupational Health support, compared to under a fifth of small ones.

Occupational Health provision can help employers provide work-based support to manage their employees’ health conditions, leading to better retention and return-to-work prospects, and improving business productivity, which can be adversely impacted by sickness absence.

Secretary of State for Health and Social Care, Steve Barclay said:

High quality Occupational Health support in more workplaces would not only help to reduce economic inactivity, but it can lead to a healthier, happier workforce.

The individual health benefits are clear and by focusing on preventative measures, we can reduce the burden on the NHS and help to bring waiting lists down, which is one of the government’s top priorities.

Angela Rowntree, Occupational Health Physician for the John Lewis Partnership, said:

At John Lewis Partnership we are moving away from reactively managing sickness to proactively supporting our Partners’ health and wellbeing at work.

Our founder, Spedan Lewis understood this when he launched an in-house health service for all Partners in 1929 – nearly 20 years before the NHS was established – and we’re proud to be part of his legacy today, providing advice and support to help our Partners achieve their potential in the workplace.

We welcome this new focus on ensuring other businesses and their employees are able to access better workplace health.

The Occupational Health consultation will run until 23:59 on Thursday 12 October 2023.

Source: Gov.uk

The UK Endorsement Board (UKEB) has announced that it adopted amendments to the international accounting standard, IAS 12 International Tax Reform: Pillar Two Model Rules.

These changes were announced by the International Accounting Standards Board (IASB) in May. The UKEB published an adoption statement and the text of the amendments, which are the following:

• a temporary exception from having to recognize and disclose deferred taxes arising from legislation implementing OECD Pillar Two model rules;
• a requirement to disclose use of the above exception;
• a requirement to disclose current tax expense related to the Pillar Two income taxes; and
• a requirement to disclose information regarding exposure to Pillar Two income taxes arising before the legislation comes into force.

The first two points above are effective immediately and the last two apply to annual reporting periods beginning on or after 1 January 2023.

The implementation of the rules will continue to be monitored by the IASB, including on whether to remove the temporary exception or make it permanent.

The amendments will be consolidated into IAS 12 in March 2024.