Ahead of the report stage scheduled for 24 May, the government has tabled several proposed amendments to the Finance Bill 2021 including to the super deduction and non-resident SDLT surcharge. It has also proposed four new clauses and a new schedule concerning VAT.
Extension of super deduction and special-rate allowance
The new super deduction and temporary first-year allowance for special-rate assets are being amended to enable background plant and machinery in leased buildings to qualify for these allowances.
The government amendment, to be introduced in the report stage of Finance Bill 2021, will ensure that the allowances are available where a company purchases or constructs a building and fits it out with fixtures and other assets that contribute to the functionality of the building, or its site, as an environment in which commercial activities can be carried out. Such assets were previously excluded from attracting these allowances owing to the general exclusion of leased assets.
ICAEW called for an extension of these allowances to leased assets in its ICAEW REP 35/21 and pointed out the complexity that the rules would cause, as originally drafted, in cases where buildings are purchased or constructed and parts of them are fitted and leased out (eg, shopping centres, offices and industrial spaces with individual leased units and university accommodation). In such cases, fixtures and other assets in all parts of these buildings will now qualify for the allowances.
Corporate trustees excluded from increased SDLT rates
Finance Bill 2021 introduces a 2% SDLT surcharge on the purchase of dwellings in England and Northern Ireland by non-resident persons (including companies).
A company is treated as non-resident for these purposes where it is treated as such for corporation tax purposes, or it is treated as resident for those purposes and is a close company which is controlled by non-residents and is not specially excluded.
A special exclusion had been in place for Property Authorised Investment Funds and UK Real Estate Investment Trusts.
Following engagement with stakeholder, it is intended that corporate trustees will now also be specifically excluded. This change will ensure that such companies do not suffer the surcharge as a result of being controlled by non-residents.
A further amendment is also proposed to modifications in applying the test of ‘control’ where attributing the rights of one party to its associates in assessing whether a company is ‘close’.
Under the amendment, interests held by A many not attributed to its associate B where A or B’s interest in the company are de minimis. This is to remove a potential unintended consequence.
The EU is introducing two special VAT accounting schemes known as the One Stop Shop (OSS) and the Import One Stop Shop (IOSS) from 1 July 2021. As a result of the Northern Ireland Protocol, the UK is also implementing these schemes for Northern Ireland.
Prospective new cl17 and Sch1 provide the primary legislation, with some details and commencement to be set by regulations.
Prospective new cl18 introduces a power for HM Treasury to make further provision in regulations and sets out the applicable parliamentary procedure for making any necessary changes to those schemes.
- Implementation of e-Commerce VAT changes in Northern Ireland
- New cl17 and Sch1: VAT and distance selling: Northern Ireland
- New cl18: VAT and distance selling: power to make further provision
VAT: continued application of the principle of abuse
Prospective new cl19 clarifies UK domestic legislation to put beyond doubt that the VAT principle of abuse (developed through and adopted in EU case law, (eg, Halifax and Kittel) continues to apply in the UK.
The measure will come into effect on Royal Assent to the Finance Bill 2021 and will have retrospective effect from the end of the transition period (23:00 on 31 December 2020).
- VAT: continued application of the principle of abuse
- New cl19: continuing effect of principle preventing abuse of the VAT system
VAT on imported works of art
Changes to the place of supply rules from 1 January 2021 provide that the place of supply of certain imported goods sent in consignments valued at no more than £135 is the UK, where this would previously have been outside the UK.
However, this has an unintended consequence that imports of works of art, antiques and collectors’ items valued at £135 and under can no longer benefit from an effective reduced rate of VAT (5%) under the import valuation rules.
Prospective new cl20 addresses this issue by providing a reduced valuation of 25% of the full value for supplies of imported works of art, antiques and collectors’ items, sent in consignments valued at no more than £135.
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