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UK's Tax Agenda Topped Up

Kitty Miv, Editor
11 March, 2021

Well, I promised last week that we would take a look at the rabbits pulled by Rishi Sunak out of his budget hat, and the UK Chancellor did not disappoint.

Following the UK's exit from the European Union earlier this year, and with the economy in the COVID doldrums, Sunak made a number of attention-grabbing announcements in his March 3 speech, including a hike to the headline corporate tax rate, new value-added tax and property tax relief measures for businesses, and the creation of a number of new freeports.

The Chancellor revealed that the corporate tax rate will be hiked to 25 percent from April 2023. Businesses with profits of GBP50,000 (USD69,800) or less will continue to benefit from the 19 percent rate, while a tapered rate will be introduced for profits above this ceiling such that only businesses with profits of GBP250,000 or more will be fully subject to the new 25 percent rate.

The Government has also announced that the rate of VAT for the tourism and hospitality sector would not return to the headline rate from September 30, 2021, when the current concessionary five percent rate is due to expire. Instead a 12.5 percent rate will be offered for a further six months, until March 31, 2022. And having earlier committed to not hike individual tax rates, the Government instead announced that individual income tax thresholds will be frozen from April 2022 until April 2026.

It also emerged that the UK's Diverted Profits Tax rate will rise to 31 percent from April 1, 2023, from 25 percent, in a change intended to maintain the current differential between the Diverted Profits Tax rate and the Corporation Tax rate, following the announcement that the UK would be increasing the corporate tax rate in 2023.

The DPT applies to profits arising from April 1, 2015, and is focused on contrived arrangements designed to erode the UK tax base.

The rate of Diverted Profits Tax charged on diverted profits that are ring-fence profits or notional ring-fence profits will remain unchanged at 55 percent.

The rate of Diverted Profits Tax charged on taxable diverted profits which would have been subject to the bank surcharge also will remain unchanged at 33 percent.

And to top things off, the UK Government has warned multinational companies that it intends to legislate to disapply the EU Interest and Royalties Directive (IRD).

The IRD (2003/49/EC) ceased to apply to the UK when the Brexit transition period expired on December 31, 2020. The IRD was implemented into UK law by the Finance Act 2004 and later rewritten at sections 757 to 767 Income Tax (Trading and Other Income) Act 2005 (ITTOIA). This legislation applied independently of the IRD and therefore continued to exempt relevant payments of interest and royalties after the end of the Brexit transition period.

Now, the UK is planning to repeal sections 757 to 767 ITTOIA with effect from June 1, 2021, in Finance Bill 2021. As such, for payments made on or after this date, no exemption from UK withholding taxes on payments of annual interest and royalties arising in the UK made to connected companies in the EU will be available.

Until next week!


About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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