Tax Update: Umbrella Companies and Revocation of EU-Related Tax Legislation
The impact of Brexit will continue to be felt for some time to come. The latest development – at least, as far as legislation is concerned, is the government’s publication of a raft of EU-related tax laws being revoked by the end of the year – and why.
Meanwhile, HM Treasury is proposing three options for regulating 'umbrella' companies in a bid to tackle tax abuses – effectively completely reviewing their operation.
EU-related tax laws
The publication of the soon-to-be-revoked legislation came just days after the Law Society renewed its earlier call for government to publish a list of every bit of legislation being revoked, as soon as possible, “to ensure adequate scrutiny” of the affected laws.
The tax laws listed are among around 600 pieces of legislation to be revoked as part of the Retained EU Law (Revocation and Reform) Bill (the sunset clause is being abandoned). Legislation that will be consigned to history includes:
· Tax information exchange agreements on the taxation of savings income between the UK and the Crown Dependencies, the British Overseas Territories and the Dutch territories of Aruba and the Netherlands Antilles. The rules, said government, have been made ‘inoperable’ following Brexit.
· Regulations requiring agents to provide HMRC with information on savings income paid to or received on behalf of EU Member State residents.
· Regulation on the tariff and ‘combined nomenclature’ and on the Common Customs Tariff
· A co-operation agreement for the sharing of information between HMRC and EU Member States
· Rules authorising the UI, to apply differentiated levels of taxation to motor fuels in certain geographical area
· Controls on cash entering or leaving the EU
· Rules setting out arrangements for additional import duties in the milk and products sector; for semi-milled and milled rice; and rules setting out specific measures for grants of special expert refunds for beef and veal (and similar rules for cereal and rice processed products)
The full list of legislation to be revoked can be found here.
Umbrella companies
Separately, a consultation is underway on proposed legislation in relation to non-compliance with tax and employment rights by umbrella companies. Three options are set out in the consultation document Tackling non-compliance in the umbrella company market. These are:
· Mandating due diligence - The government is concerned that there is a lack of visibility and absence of due diligence which may create the gaps non-compliant umbrella companies need to enter and operate within the labour supply chain
· Transferring tax debt to other parties in the supply chain - Broadly to cover employment taxes that ought to have been accounted for by umbrella companies (but remains unpaid by reason of error, avoidance or fraud)
· Making employment businesses the ‘deemed employer’ for tax purposes where umbrella employs the worker – Such a change in entity would mean, for example, umbrellas no longer able to incorrectly treat payments to workers as non-taxable,(eg with ‘loans’ commonly associated with avoidance schemes, if the tax had already been withheld and paid to HMRC.
The consultation closes on 29 August 2023 and the government will publish a summary of responses at a later date.
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