Today HMRC have published additional resources, consultations and updates on tax administration and maintenance. Below PwC tax specialists give their view on the main updates and what they mean for taxpayers.
Jon Richardson, head of tax policy at PwC, said:
“By using the name Tax Administration and Maintenance Day the government was clearly managing expectations about what would be announced. A key focus was on tax simplification and there is more than a hint of irony in the fact that the government issued almost 250 pages of consultation and responses yesterday on the subject. Despite the name there were also some important announcements on key tax policy areas such as R&D.”
Research and Development
Rachel Moore, innovation incentives partner at PwC, said:
“As trailed in the Autumn Statement, further information on the proposals to reform R&D credits have been published. Following years of discussion on how to tackle abuse in the R&D market, several changes have been proposed to tighten up the process for making R&D claims. We welcome these proposals which should go a long way to providing greater clarity for taxpayers, agents and HMRC. The balancing act for HMT will be how to implement the proposed changes to documentation and claim process without too much additional red tape for the taxpayer.
“As expected, other previously trailed changes will result in winners and losers. The winners will be those spending on data and cloud for R&D with the losers being the overseas R&D spenders.
“The proposals to prevent overseas costs are widely drawn with a proposed exclusion on all overseas labour costs. While the policy intentions behind this are well understood, this could have significant consequences for key R&D industries such as the pharmaceutical sector where overseas clinical trials are often critical to drug and vaccine development. There is still time to debate these issues and helpfully the consultation document indicates there may be potential for some, albeit narrow, exceptions to the new rules.”
Tax compliance, disputes and administration
Andy Olymbios, UK tax disputes and tax governance leader at PwC, comments:
“The proposals to speed up the resolution of tax enquiries, and to ensure that taxpayers and HMRC focus on the issues that make a difference to the overall tax answer, are welcome. Too often tax enquiries and disputes get bogged down. The suggestion of using alternative dispute resolution should be welcomed as a way of quickly agreeing the key facts and getting to the heart of the issue.”
Landfill Tax Call for Evidence
Jayne Harrold, environmental tax leader at PwC, said:
“The landfill tax call for evidence is a root and branch review of various elements of the tax structure to understand whether they still align with the achievement of environmental objectives and gather evidence on whether certain elements act as a disincentive for material being moved up the waste hierarchy. Given that the tax has been in place since 1996 and the waste industry has moved on significantly since it was introduced, it would seem to be a good time to hold a review and look for ways in which the environmental effect of the tax can be improved.
“Whilst landfill tax has been very successful in changing behaviour, there are some widespread issues with the administration of the tax, particularly around the administration of the lower rate of tax, which applies to certain inert materials like soil, brick, concrete and some ash. It seems to be a lost opportunity to consult on materials that should be included in the lower rate of tax and not consult on ways in which the application and administration could be improved to help give taxpayers greater clarity and certainty over an area which is causing significant dispute.”
Proposals on the treatment of aggregate removed during construction works
Jayne Harrold, environmental tax leader at PwC, comments:
“Borrow pits are widely used on very large infrastructure and construction projects to reduce the transport of aggregate through local communities. The proposed removal of the aggregates levy exclusion for the use of these borrow pits will not add significant tax burden as aggregates levy is £2 per tonne, but it will result in significant new compliance and administration burdens for those affected.
“Aggregates levy is a very complex tax. The proposed consultation on simplification by replacement of some exemptions with a single exemption for unavoidable byproducts of construction projects will hopefully ease administration and interpretation and result in fewer disputes with taxpayers.”
As expected, HMRC has reported back on the consultation earlier in the year, providing a summary of the representations made to it, and the Government’s response, including next steps. The requirement for larger groups to maintain OECD format master file and local file will move forward, with further consultation in 2022 on legislation to take effect from April 2023. The requirement for an evidence log has been replaced by a legal requirement for a summary audit trail to summarise the work undertaken by business in arriving at conclusions in transfer pricing documentation. An international dealings schedule is not being introduced at this time, but will be kept under review for the future.
Yvonne Cypher, UK transfer pricing leader at PwC, comments:
“This is a thoughtful and measured response to the consultation and the commitment to the further involvement of external stakeholders in the process of producing legislation and guidance is very welcome. We also acknowledge that, whilst it is key that businesses continue to assess their transfer pricing reporting systems and processes, it is encouraging that HMRC are thinking about materiality, cost and administrative burden to taxpayers, and in this light have not sought to move forward with the international dealings schedule at this stage.”
“The confirmation of OECD-format master file and local file requirements for larger groups in the most part brings the UK into alignment with many other territories. We note the introduction of the summary audit trail and whilst we understand the need for HMRC to have better visibility of the process behind documentation preparation, clear guidance on expectations with regard to that process and the audit trail documentation itself will be critical to ensure this can be prepared in a pragmatic and cost effective manner.”
At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 156 countries with over 295,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at PwC.
PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see how we are structured for further details.
© 2021 PwC. All rights reserved