The Autumn Budget presented the Chancellor with some choices, made less difficult to a degree by the economy’s unexpectedly strong recovery. The significant tax-raising measures – on Corporate Tax and National Insurance - having been announced in advance, today’s announcements were largely focused on spending pledges.

For the insurance industry however, there was some good news. The standard rate of IPT was left unchanged at 12% and there were positive announcements on the tax impacts of IFRS17, the net pay anomaly, a consultation on the pension charge cap and the VAT treatment of fund management all covered below in more detail. There was also some improvement to the legislation that will require notification of uncertain tax treatment by large businesses. The implementation of the OECD proposals for taxation of the digital economy was not mentioned but remain a significant source of interaction with HM Treasury.

Indirect Taxation

IPT - standard rate freeze

• Following sustained campaigning by the ABI over a long period, the standard rate of IPT remains unchanged at 12%. The standard rate doubled from 6% in 2015 to the current rate of 12% by 1 June 2017.

IPT - location of risk legislation

• Following the UK’s exit from the EU, the Government will move the legislation that governs the criteria to determine where a risk is situated for Insurance Premium Tax (IPT) purposes directly into IPT legislation. This measure will move from regulations to primary legislation to clarify rules for certainty and continuity for fair tax treatment. This will not amend the criteria for the location of risk. These changes have been the subject of detailed discussions between the ABI, HMRC and Lloyd’s of London. This measure will have effect from the date of Royal Assent to Finance Bill 2021-22.
• The Tax Information and Impact Note provides more information.

VAT - fund management

• As expected, a consultation on options to simplify the VAT treatment of fund management fees will engage with industry in the coming months.

Pensions Tax Administration

Net Pay Anomaly

• The ABI has long called for changes to the Net Pay Anomaly and following the response to the Call for Evidence on Pensions Tax Relief Administration, the Government has announced a measure that will benefit low-earning individuals with a total taxable income below the personal allowance. The government will introduce legislation in a future Finance Bill to make top-up payments directly to these individuals, saving in a pension scheme using a Net Pay Arrangement.
• The full response to the Call for Evidence can be found here.

Green investing and the charge cap

• UK pension savers should be able to benefit from the greater return potential of investing in illiquid assets, such as infrastructure and renewable energy projects. Many of these assets are held in funds managed by private equity and venture capital firms, where performance charges are commonplace, and providers and pension schemes have historically shied away from investing in such funds because of concerns they would breach the 0.75% cap.
• The ABI welcomes a review of the scope of the charge cap to give UK pension savers greater access to funds that invest in the green economy, whilst continuing to ensure pensions provide value for money for savers. We will study the detail of the consultation and work with the Government to ensure a balance is struck between pension savers continuing to benefit from value for money charges whilst having access to the greater return potential of illiquid investments.

Digitalisation of Relief at Source

• The Government confirmed that it will invest to improve the administration of pensions tax reliefs including work to digitise the current paper claims system for Relief at Source (RAS). In a future Finance Bill, the Government will legislate to provide the proper framework to achieve this.

IFRS 17

• Following extensive discussions between the ABI, its members and HMRC, the Government is introducing powers in Finance Bill 2021-22 to lay regulations for insurance companies to spread the transitional impact of International Financial Reporting Standard 17 (IFRS17) for tax purposes. In addition, regulations will also give the Government the power to revoke the requirement for life insurers to spread acquisition expenses over seven years for tax purposes.

Notification of uncertain tax treatment by large businesses

• As announced on 20 July 2021, the Government will legislate in Finance Bill 2021-22 to introduce a new requirement for large businesses to notify HMRC when they take a tax position in their returns for VAT, corporation tax, or income tax (including PAYE) that is uncertain.
• Uncertain amounts will now be defined by reference to two criteria: that a provision has been made in the accounts for the uncertainty, or that the position taken by the business is contrary to HMRC’s known interpretation (as stated in the public domain or in dealings with HMRC).
• The third criterion which was included in draft legislation (where there is a substantial possibility that a tribunal or court would find the taxpayer’s position to be incorrect) is not included at this stage.
• While the Government is committed to further consideration of this third trigger, the fact that it is not being introduced at this time suggests that the Government has listened to stakeholders including the ABI.

A summary of responses following consultation with stakeholders was published on 20 July 2021. The legislation will be effective from 1 April 2022. The tax information and impact note provides more information here.

Corporate Taxation

Diverted Profits Tax

• The Government has announced that the Finance Bill 2021-22 will amend section 101A and 101B of Part 3 of the Finance Act 2015. This is intended to ensure companies can still use these relieving provisions to amend Corporation Tax during the Diverted Profit Tax review period.
  AHCs/REITs.
• As part of the UK funds regime review, HMRC is introducing new rules for the taxation of qualifying asset holding companies (AHCs) and making targeted changes to the tax rules for real estate investment trusts (REITs), with the intention of making the UK more attractive for those entities to locate. A response to the call for input on the wider aspects of the review will be published.

Taxation of securitisations and insurance linked-securities (ILS)

• The Government will legislate in Finance Bill 2021-22 to introduce a power enabling HM Treasury to make Stamp Duty and Stamp Duty Reserve Tax changes in relation to securitisation and insurance-linked securities arrangements by secondary legislation. The measure will take effect from Royal Assent to Finance Bill 2021-22.
• The Taxation of securitisations and insurance linked-securities tax information and impact note provides more information.

Dormant Assets Scheme Expansion

• As announced in the Government’s Tax Policies and Consultations Command Paper published on 23 March 2021, the Government will legislate in Finance Bill 2021-22 to amend tax legislation to assist with the expansion of the Dormant Assets Scheme. The change will take effect once the Dormant Assets Bill becomes law and the necessary commencement order has been made.
• The tax information and impact note on the subject provides more information.

OECD proposals – UK implementation

• The ABI has continued working extensively on the two ‘Pillars’ of the OECD proposals for taxation of the digital economy, with HM Treasury as well as the OECD and international industry bodies. In addition to our focus on timing differences, we continue to have concerns on how insurance company fund investments will be impacted by the implementation of Pillar Two.
• Insurance companies are very significant investors in investment fund assets. These funds represent substantial investment and pension savings for millions of individuals. The basic principle of investing in funds is that the funds are not taxable entities, as any profits are taxable at the investor level – this ensures that capital markets encompassing trillions of pounds are efficient. For insurance companies, as a general principle across most jurisdictions (including the UK) investor profit is taxed at the insurance company level. If funds were subject to top up tax at the parent level, the fund income would be taxed twice, once at the investor level and again at the parent level. This additional tax could be passed on to policyholders.