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Life and Tax in the shadow of Brexit

Despite the uncertain status of the UK’s departure from the European Union, industry and government struggle on attempting to address matters not directly affected. However, with the Spring Statement postponing conclusions, European election results underlining the UK’s semi-emergent position and prospective prime ministers setting out their stalls, this is easier said than done.

The time between now and the EU deadline of 31 October deadline will pass quickly. It’s unlikely, but a deal being struck by then could see the Autumn Budget set out the framework of a three-year Spending Review as the Treasury prepares to unleash its ‘deal dividend’ of spending reserves to support the post-Brexit economy. But more delays would leave the Treasury in an awkward position in November.

In preparation for a 29 March departure, HMRC carried out much ‘no-deal’ contingency planning, including the laying of multiple Statutory Instruments in February and March relating to supplies to the EU. These now allow FS businesses to obtain VAT recovery in relation to EU supplies – a significant change and something the ABI has argued for since 2016 - but at present only in a ‘no deal’ Brexit.

The recent publication by the HMRC of a public consultation on the fair and efficient operation of Insurance Premium Tax - a ‘call for evidence’ mentioned in the Spring Statement - will focus on administration and collection, and on ‘unfair outcomes’ . IPT rates and exemptions fall outside the scope of this review, which has been framed as seeking to ensure fairness of outcome in terms of administration and collection. Among other things, it will address some concerns HMRC appears to have regarding administration and arrangements fees. Needless to say, the ABI, and the insurance industry more generally, will respond to the invitation to offer suggestions for the improvement of the administration and collection of IPT.

Also on IPT, the European Court recently addressed the issue of where the tax liability lies in relation to a global policy (i.e., with the policyholder or the target company) in Warranty & Indemnity business, a referral from the Finnish Supreme Court (A-Ltd (C-74/18)), perhaps the most significant judgment on the location of risk since Kvaerner (C-191/99). The case looked at whether the IPT of (i) the member state where the policyholder is established or (ii) the Member State where the target company is established should apply, where an EU insurer offers insurance covering contractual risks associated with the value of shares and a fair purchase price in an acquisition. The outcome is that the applicable IPT is that of the Member State where the policyholder is established.

Meanwhile, at a macro level, the European Commission’s Group on the Future of VAT have released a updated analysis of the functioning of the VAT rules for financial and insurance transactions as such with a special emphasis on their cross-border dimensions. The Commission services are evaluating potential tenders for the study, which it is hoped will start soon and could be finished by Summer 2020. The main objective is to evaluate the functioning of the current VAT rules on financial and insurance services, while putting them in the context of all other relevant legislative developments in those sectors. Readers with longer memories will recall 2007 EU proposals for modernising the scope of the VAT exemption for financial services, withdrawn in 2016. Let’s hope this makes more progress.

At an equally macro level, the OECD, NGOs and business representatives (including the ABI) have been discussing proposals for taxation of the digital economy, further to a public consultation document issued in February. Seen by many as a ‘BEPS 2.0’ initiative for scrutiny of international commerce, this will have far-reaching consequences for multinationals.

HMRC’s Making Tax Digital programme came quietly into effect at the start of April, with VAT return numbers for simpler, VAT-registered businesses being submitted via a compatible software link. This is a tentative start for what is likely to be the start of a revolution in the way taxpayers of all types engage with HMRC, and vice versa.

Looking forward for positive news, members are reminded that booking is open for the ABI Tax Convention (9-10 September) which will be held once again in Brighton at the Hilton Metropole. A chance to join the foremost assembly of the insurance tax community, for bracing sea breezes and fresh thinking about the big issues.

Last updated 04/06/2019