Our round-up of recent and forthcoming developments in UK law and practice for our international stakeholders.

  • Sanctions - an update, from a UK perspective, on the imposition of sanctions on Russia

  • Beyond Brexit – our new Beyond Brexit knowledge portal discusses post-Brexit law reform proposals and other unfinished business

  • ESG – at the top of our clients' agenda across all sectors; we discuss the new UK Environment Act, mandatory climate-related disclosures and measures to promote ethical practices in the workplace

  • Employment Law – post-Brexit immigration, ethical workplace issues and reform of non-compete covenants

  • Competition – trends in post-Brexit merger control and far-reaching reform proposals for the UK's competition regime

  • Data Protection – international data transfers and proposed data protection reforms post-Brexit; the implications of Lloyd v Google

  • IP and Technology – the UK's approach to regulating AI and protecting users from harmful digital content; and a possible new UK exhaustion of IP rights regime

  • Consumer Protection – a tougher regulatory environment for consumer-facing businesses

  • UK cases round up – the latest cases affecting UK-based commercial and M&A-related contracts

  • Capital Markets – we look ahead to a radical shake-up of the UK listing regime following our departure from the EU and discuss the reform of LIBOR for lending

  • Corporate Taxation – the new tax privileged UK regime for qualifying asset holding companies (QAHCs); the impact of the EU's draft shell entity directive and the OECD's BEPS scheme on UK businesses

  • Personal Taxation and Incentives – the Protocol on Social Security Co-ordination, news on taxation of contractors and a business levy to tackle the shortfall in healthcare funding

  • UK Pensions – new requirements on funding defined benefit pension schemes, stronger Pensions Regulator powers and ESG

  • Real Estate – measures to deal with post-Covid rent arrears and improve building safety; the impact of reforms in the residential market and planning regime

We are continuing to monitor and report on developments in the imposition of international sanctions on Russia as the situation in Ukraine unfolds. Read our latest update for our clients and contacts.

Please also see our articles below under Company Law and M&A on the proposed introduction of two new regimes which would (i) require disclosure of UK real estate ownership by overseas entities and (ii) improve the quality and integrity of information about corporate ownership in the UK.

Beyond Brexit

Is Brexit finally done?

Following its formal departure from the EU in January 2020 and the expiry of the Brexit transition period at 11 pm on 31 December 2020, the UK has moved to a new trading relationship with the EU based on the UK-EU Trade and Cooperation Agreement (TCA). However, as the TCA was negotiated under very tight deadlines, there was a certain amount of "unfinished business." Progress on these issues during 2021 has been somewhat mixed.

For a high-level overview, read our articles below. For comprehensive coverage of issues related to the UK's withdrawal from the EU, see our new Beyond Brexit suite of materials.

  • Personal data: On the positive side, in June 2021, the European Commission adopted an adequacy decision in respect of the UK, ensuring that EEA data controllers could continue with existing arrangements to transfer personal data to the UK, following the expiry of a 6 month grace period in the TCA.  For more information, see Data Protection section.

  • Financial services: Less positively, although a Memorandum of Understanding on financial services has been agreed with the EU, it has not yet been signed and little progress has been made in relation to financial services equivalence for UK firms.  The UK Government now appears to be focussing instead on reform of UK financial regulation following Brexit, and divergence from EU law has become something of an inevitability.  See also our New Year briefing on Financial Services Regulation.

  • State aid: The TCA also required the UK to put in place its own domestic subsidy control regime to replace the EU state aid rules.  Whilst the Subsidy Control Bill is currently before Parliament, it will be some time before it comes into force. Meanwhile, to comply with its commitments to the EU, the UK Government has given the TCA's state aid provisions a form of direct effect – but this is not sustainable in the long term.

  • Border formalities for goods: Having left the EU Customs Union and Single Market, the UK needs to introduce its own controls and border formalities on goods entering the country from the EU – but this transition has been subject to repeated postponements.  The latest position is explained here but the UK is not expected to have introduced full border controls on goods imported from the EU until mid-2022.  As a result, there remains the possibility of disruption and delays for goods supply chains as new processes are introduced.

Northern Ireland

Discussions continue with the EU remains over the renegotiation of arrangements in the Brexit Withdrawal Agreement relating to Northern Ireland. There had been concerns that the UK threat to invoke "safeguard measures" (under Article 16 of the Northern Ireland Protocol) would have led to a serious breakdown in relations, potentially prompting the EU to give notice to terminate the TCA. Towards the end of 2021, there appeared to have been a softening of the UK's approach and the risk of a serious breakdown seemed to have receded. However, the politics involved remain extremely difficult and it is far from clear that tensions between the EU and UK over Northern Ireland will be definitively resolved in the near future.

Retained EU law

Following Brexit, the UK now has a new category of "retained EU law", such as EU Regulations which have been "converted" into UK statutes in order to avoid leaving significant gaps in UK regulatory frameworks.   Despite the UK Government's desire to regulate differently from the EU (see below), retained EU law is likely to remain a feature of UK law for many years to come; our briefing explains how it works, including the extent to which CJEU rulings may continue to be followed in the UK (despite Brexit). We also discuss new proposals for a "Brexit Freedoms Bill" which, if passed, would alter the status of retained EU law and make it easier for changes to be made in future (thus potentially accelerating divergence – see below).

Divergence from EU law

The UK is in principle now free to diverge from EU law subject to the constraints under the TCA and other international commitments. However, although the UK Government has ambitious aspirations across a wide range of areas, it has yet to articulate a comprehensive, long term vision of which areas should be prioritised for reform and exactly what changes it would like to make. 

In addition, as we note in this briefing, many recent proposed changes to UK law have been driven primarily by factors other than Brexit. That said, there are some areas where the UK Government has sought to take advantage of its newly-regained regulatory sovereignty including:

International Trade Agreements

Alongside these domestic initiatives, the UK Government has been pursuing new trade deals with Australia and New Zealand (signed but not in force), India (negotiations commenced in January 2022) and the United States (though rapid progress on this deal is thought unlikely). It has applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and hopes to start trade negotiations with the countries of the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates). The UK also wants to expand its existing trade deals with Canada, Israel and Mexico. For more information on the UK's trade agreements, see our interactive maps.

For more information, please contact:


As noted in our previous update, the UK Government has committed to mandate climate-related disclosures in line with the recommendations of the Taskforce on Climate-related Disclosures (TCFD), across the entire UK business and finance community over the next few years. The largest pension funds, asset managers and UK listed companies are already in scope. In the coming year, more business organisations will be brought into scope.

For asset managers and owners, the TCFD initiative forms part of the UK sustainability regime which is beginning to take shape. In parallel, UK businesses operating in EU markets are also mindful of EU regulation such as the proposed directive on corporate sustainability due diligence.

For the wider business community, the new Environment Act is designed to facilitate sustainable development whilst improving environmental protection across a broad spectrum of commercial activity.

Mandatory climate-related disclosures

UK corporates - Mandatory climate-related disclosures will be required of a wider range of corporate entities, namely UK companies with more than 500 employees and which have either transferable securities admitted to trading on a UK regulated market (such as the LSE's main market), or are banking companies or insurance companies; UK AIM companies with more than 500 employees; and any other UK companies or LLPs which have more than 500 employees and a turnover of more than £500m. In-scope entities will be required to disclose climate-related financial information in line with TCFD for financial periods beginning on or after 6 April 2022. 

Premium-listed companies are already required to make TCFD disclosures on a "comply or explain" basis. This requirement now also applies to standard-listed companies, with effect for financial periods starting on or after 1 January 2022.

Alternative asset managers and owners - For asset managers with more than £50 billion AUM, the UK TCFD disclosure requirements came into force on 1 January 2022, with the first public disclosures required by 30 June 2023; for other asset managers with more than £5 billion AUM, the rules will apply on 1 January 2023, with the first public disclosures required by 30 June 2024.  For further details, please see our New Year briefing.

Pension schemes - New legislation also requires greater disclosure by pension scheme trustees, including some online public disclosure, about their investment policies and implementation of them.  This is closely based on recommendations of the TCFD and includes the account taken of ESG factors, including climate change, and information about stewardship policies and engagement activities.  Schemes will also be required to incorporate climate change risks and opportunities into their governance systems and make specific additional public disclosures about climate change targets and policies.  These requirements are being phased in, with the very largest schemes (£5 billion or more in relevant assets) and authorised master trusts in scope since October 2021.  Schemes with relevant assets of £1 billion or more will become subject to the same requirements from October 2022.  Smaller schemes might be affected from 2024. 

The UK Government has proposed that, from 1 October 2022, these requirements will be expanded to require schemes to calculate four, rather than three, climate-related metrics on their investments.  This would make a portfolio alignment metric, on the extent to which scheme investments are aligned with the Paris Agreement goal of limiting the increase in the global average temperature to 1.5 degrees Celsius above pre-industrial levels, mandatory alongside absolute emissions and emissions intensity metrics.  There will also be corresponding reporting requirements. 

There are further proposals, under the UK Government's Greening Finance roadmap, for this regime to be broadened to cover other sustainability-related risks and opportunities beyond climate change, with staging based on schemes' relevant asset sizes in the same way as noted above.  A consultation is awaited.

The growing focus on these matters may have an impact on trustees' investment decisions.  Employers might wish to engage with trustees on this topic, especially where ESG and sustainability are also a business priority.  

Our Sustainable Business Hub includes content on ESG considerations for pension schemes.

A new framework for reporting nature-related risks and opportunities

A new framework for firms to report on nature-related risks and opportunities – following the same approach as the TCFD’s recommendations on climate change – is in development by the Taskforce on Nature-related Financial Disclosures (TNFD). Given the UK’s enthusiasm for international standards and its commitment to tackle nature-related issues, asset managers would do well to think about their approach to environmental issues more broadly this year. They might also want to take a look at the TNFD’s preliminary reporting proposals, expected in the coming months, and consider whether they can evolve their own investor reporting to take account of them.

Biodiversity and conservation are also key themes of the new UK Environment Act. Companies and their investors should therefore also be aware that under the Environment Act (see full article below), a new set of UK rules has been proposed which seek to protect the natural environment outside the UK. For instance, any large organisation sourcing certain overseas commodities – likely to be foodstuffs but also rubber – will need to conduct supply chain due diligence to ensure that any such products are not linked to illegal deforestation.

ESG Regulation - an update for the alternative asset management industry

Last year, our alternative asset manager clients worked harder than ever to ensure that their investment approach was equipped to meet one of the defining challenges of our time. While legal and compliance teams struggled to keep up with new and emerging sustainability regulation, senior-decision makers re-focused on the opportunity. Increasing investor demand for investment funds that are part of the solution to societal problems – and increasingly those that actively avoid harm – requires a strategic response.  But the active ownership model that is an integral part of private capital's heritage means alternative asset managers are very well-placed to respond.

Climate change and sustainability therefore remains close to the top – if not at the top – of the agenda for many firms. The UK sustainability regime for asset managers and owners is starting to take shape: as noted above, TCFD-aligned disclosure rules, both at the entity and product levels, are now in force for the largest asset managers and will apply to others from next year. High level proposals for a Sustainability Disclosure Regime that will "overlay" those rules which emerged towards the end of last year and will evolve and become more concrete through the course of 2022 and beyond, as will the UK Green Taxonomy.

By contrast, the EU regime is more evolved in terms of application and detail, though even then delays to technical standards have contributed to considerable uncertainty. To a greater or lesser extent, divergence between the UK and EU seems inevitable.

Our New Year briefing on financial services regulation for asset managers and asset owners discusses these topics in more detail (see Part 1: ESG and Sustainability) along with the UK perspective on a range of other EU and UK regulatory measures. More recently, the EU Platform on Sustainable Finance has published its Final Report on a potential Social Taxonomy under EU sustainability legislation. Read our commentary for more information on this proposal. 

Over the past year, we have also published a regular newsletter for the asset management community, Sustainability Insights, commenting on developments in ESG regulation. The most recent edition is here and the full series is accessible here. If you would like to be added to the mailing list for Sustainability Insights, please get in touch.

The Environment Act 2021

The long-awaited Environment Act 2021was finally passed into law in November 2021, nearly three years after a bill was first proposed to govern environmental matters post-Brexit. The UK Government has described it as "the most ambitious environmental programme of any country on earth". Here is a brief overview.

Environmental principles: The Act enshrines in law 5 environmental principles which will underpin future UK Government policy, contributing to better environmental protection and more sustainable development.

Environmental targets: The Government must set at least one legally binding, environmental target lasting at least 15 years in each of four priority areas (water, air quality, biodiversity and waste/resource efficiency), as well as on species abundance and fine particulate matter.

Waste and water resource efficiency: The Act increases the Government's powers to manage the impact of products throughout their lifecycle, moving towards "extended producer responsibility" ("EPR"), with producers bearing the full financial cost of managing products at the end of their life, incentivising durability, reparability and recyclability of materials. There is already a consultation underway on an EPR scheme for packaging.

Forest risk commodities: The Act aims to ensure that UK businesses are not contributing to illegal deforestation via imported products. An outline of future requirements is set out in a separate consultation.

Real estate developments: -The Environment Act contains measures designed to protect the environment whilst facilitating sustainable real estate development. The Act:

  • introduces Local Nature Recovery Strategies, a new, England-wide system to establish priorities and map proposals for actions to drive nature’s recovery and provide wider environmental benefits.
  • provides that all planning permissions will require biodiversity net gain to be met before the development commences.
  • introduces conservation covenants, agreements with a landowner which have a "conservation purpose". For example they may be used as a condition of funding for a development or as part of a biodiversity offsetting scheme.

The UK Government has set itself an ambitious timetable to conduct the multiple workstreams needed to implement the Act, some of which were underway before the Act became law. Organisations looking to translate these framework provisions into actions must await further consultations and draft legislation. Please refer to our recent briefing for further commentary on the real estate aspects of the Act.

Corporate sustainability due diligence

On 23 February, the EU Commission released its revised proposal for a directive on corporate sustainability due diligence, more than a year since the European Parliament proposed a draft directive that would have required a wide range of entities to conduct due diligence within their value chains in order to identify and manage risks relating to human rights, the environment and good governance (previously the "mHRDD"). The revised and renamed proposal is significantly decreased in terms of covered entities – the EU Commission suggests that around 9400 EU companies will meet the threshold of 500+ employees and at least EUR 150 million net turnover worldwide. A further approximately 3400 EU companies operating in high impact sectors with 250+ employees and at least EUR 40 million will be in scope at a later stage. Certain non-EU companies with significant business in the EU and meeting the above thresholds are also expected to be covered.

The Directive will require entities to conduct due diligence on "established relationships" within their supply chain, integrating it into their policies, and identifying, preventing and mitigating adverse impacts. The due diligence should cover human rights and environmental impacts, both of which are defined by references to lists of international conventions in the Annex to the directive. In respect of human rights, Part 1 of the Annex references matters such as the right to life and the prohibition of torture under the Universal Declaration of Human Rights, to prohibition of child labour under the ILO Conventions, to violation of land rights under the UN Declaration on the Rights of Indigenous Peoples. On the environmental side, Part 2 of the Annex references international norms on hazardous substances, waste and biodiversity. Companies would be expected to monitor supply chains for potential and actual adverse impacts, and certain companies would need only to diligence against "severe adverse impacts".

The planned timeline for implementation of the draft directive is quite long; member states' national implementing laws must be applied from two years after the entry into force of the directive for larger organisations and 4 years for smaller organisations. Given that the legislative process may itself take 18 months or more, we would expect that the due diligence obligations may apply from 2025 or perhaps even later. Please refer to our briefing for further commentary on this proposal.

Ethical workplace issues

Please see the Employment section below for details of measures to promote ethical practices in the workplace, including tackling workplace sexual harassment and introducing ethnicity pay gap reporting.

For more information, please contact:

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Doug Bryden
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Carys Clipper
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Beliz  McKenzie
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Simon Witney
Employment Law

The post-Brexit business immigration rules and travel requirements continue to occupy many of our global business clients. Measures to promote a fairer and more inclusive workplace are also a key feature of the UK policy agenda.

Post-Brexit immigration one year on

Following Brexit and the end of the Brexit transition period, new travel and visa requirements apply to all non-British and non-Irish nationals arriving in the UK since 1 January 2021. Our briefing on the Post-Brexit immigration regime contains an overview of the work visa rules for non-British and non-Irish nationals under the new system. Individuals travelling for business from the UK to the EU (or vice versa) now need to consider whether the nature of their travel is such that they require a visa or not. Our interactive map sets out a high-level summary of the business travel rules for the UK and each EU jurisdiction.

Workplace sexual harassment

The UK Government ran a consultation in 2019 on possible reforms to the law on workplace sexual harassment. It has now published its response to that consultation, saying that it intends to introduce a new positive duty on employers to prevent sexual harassment in the workplace, along with a statutory code of practice on what the duty means in practice. The Government will also introduce explicit protections from workplace harassment by third parties (such as clients, customers and suppliers) and will consider extending the time limit for bringing discrimination and harassment claims in employment tribunals from 3 to 6 months. The Government has not yet set out a timetable but has said the changes will be introduced as soon as parliamentary time allows.

Ethnicity pay gap reporting

In 2018/2019, the UK Government consulted on introducing a mandatory requirement for large organisations to report publicly on the ethnicity pay gap within their organisation. Although the consultation has been outstanding for some time, the Government has come under mounting pressure to act in this area. The issue was debated in Parliament in September 2021, with the Government confirming that it is considering consultation responses and that it will respond to the consultation "in due course". Some employers in the UK publish their data on a voluntary basis, or are considering doing so, while others are reviewing their data in anticipation of a mandatory duty coming into force.

Post-termination non-competes

During the winter of 2020/2021, the UK Government consulted on proposals to reform the law on post-termination non-compete clauses in employment contracts. Such clauses prevent employees from joining a competitor or setting up a competing business for a period after leaving employment. There are two options under consideration. Under option 1, employers would have to pay employees throughout any non-compete period (between 60 and 100% of pay), as is already the case in some other jurisdictions. Option 2 would prevent employers from using non-compete clauses altogether. We await further developments in this area during the course of this year.

For an overview of forthcoming developments in UK employment law and business immigration, please see our In the Pipeline briefing.


International Employment podcast series

In these podcasts we speak to friends from law firms in a variety of jurisdictions and ask them about the key employment law issues and things to think about when employing staff in their country.

For each jurisdiction, there are three short podcasts, one covering the start of employment, the second covering the end of employment and the final one covering other key aspects of employment law in the relevant jurisdiction. Listen now

For more information, please contact:

Competition Law

The UK Government has implemented a new regime to strengthen powers to scrutinise transactions on the grounds of national security. It is also continuing moves to disentangle the UK competition and merger control regime following our departure from the EU. The Government is simultaneously consulting on specific proposals to govern the digital technology sphere.

The UK's National Security & Investment Act 2021: what you need to know

The UK's new national security regime under the National Security & Investment Act 2021 ("NSI Act") commenced on 4 January 2022.

The UK Government has created an extensive regime to strengthen its powers to scrutinise transactions on the grounds of national security. The requirement to notify and obtain approval from the Government in respect of notifiable acquisitions came into force on 4 January 2022 (and certain aspects of the NSI Act also apply retrospectively, back to 12 November 2020).

The NSI Act introduces a hybrid mandatory and voluntary notification regime. Mandatory notification, and an associated stand-still obligation, applies to notifiable acquisitions (i.e. acquisitions of qualifying entities) in 17 key sectors of the economy. Those 17 mandatory sectors are defined in the National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021. It is unlawful to complete a notifiable transaction in any of these sectors without prior approval from the Secretary of State. Failure to notify will render the transaction void, and civil and criminal penalties may be imposed.

The regime also allows parties to notify transactions to the Secretary of State on a voluntary basis. Parties to transactions falling outside the mandatory regime will therefore need to weigh up the risks of not notifying i.e. that the transaction could be "called-in" for more detailed scrutiny (and ultimately, if found to raise national security concerns, ordered to be unwound). It will be possible to complete a transaction ahead of clearance in circumstances where parties have submitted a voluntary filing, unless the Government requires the parties not to do so by imposing an interim order.

Please see our briefing for more detail: The UK's National Security and Investment Act 2021: what you need to know

Merger control: key trends for 2022

Since the end of the Brexit transition period on 31 December 2020, the UK's merger control regime was untangled from the EU's one-stop shop, and has therefore operated as a standalone merger control regime in parallel to the EU. 12 months on, here are the 6 key trends that we expect to see in UK merger control this coming year, and the impact of those trends for corporate transactions. Please see our briefing here, for more details on each: UK merger control - 6 key trends for 2022

  • Trend 1: The CMA is likely to remain an active merger control authority.
  • Trend 2: Following Brexit, the CMA has been taking an independent line when investigating transactions in parallel with the European Commission, and we would expect that to continue.
  • Trend 3: The CMA will continue to take an expansive view of the scope of its jurisdictional tests.
  • Trend 4: New jurisdictional tests may be introduced, together with a new de minimis regime.
  • Trend 5: The CMA is likely to continue to pursue enforcement action and issue fines for procedural breaches.
  • Trend 6: Expect co-operation between the CMA and the Investment Security Unit (in relation to national security grounds).

Far-reaching reform of UK competition law proposed

The UK Government has launched a raft of consultations proposing far-reaching reforms to the competition law space in the UK, including substantial changes to Competition Act enforcement cases and the UK regimes covering merger control and market investigations.  There are also specific proposals relating to the digital technology sphere, including enhanced scrutiny of mergers involving 'Big Tech' and powers for the new Digital Markets Unit within the CMA.

These consultations are closed so next steps from the UK Government are keenly awaited. Please see further details on the proposed reforms in our briefings here:

UK Competition & Markets Authority recommendation on vertical agreements: divergence from the EU?

In October 2021, the UK Competition & Markets Authority (CMA) recommended to the UK Government that the existing Vertical Agreements Block Exemption Regulation (VABER), both in force in the EU and retained from EU law following Brexit, should be replaced with a UK order (the 'Vertical Agreements Block Exemption Order' or 'UK VABEO'). The retained VABER will expire on 31 May 2022 so, without a renewal or variation, an automatic exemption regime for vertical agreements would cease to apply in the UK.

Whilst in many key respects, the proposed EU and UK level regimes take a common approach, there are some key areas of divergence: principally in the treatment of wide retail MFNs and dual distribution. 

For further information, please contact

Data Protection

The UK is reviewing the process for granting adequacy decisions to facilitate international data transfers. The Government is also embarking on reforming our data protection regime to build on the existing UK GDPR framework, whilst adopting a more risk-based approach, reducing red tape for businesses and driving economic growth and innovation.

Meanwhile, in the UK courts, the decision in Lloyd v Google has made privacy class actions less likely – and indeed other types of class action seeking compensation for breaches of data protection law without proving loss suffered by individual class members.

Data Transfers

2021 saw a series of developments in relation to data transfers and there's more to come in 2022, particularly in relation to international data transfers from the UK:

  • Adequacy decisions:  In June 2021, the EU granted an adequacy decision in favour of the UK, allowing personal data to flow freely from the EEA to the UK, for now. However, as we set out in this briefing, we can't entirely relax about data flows from the EEA to the UK.

    The UK also plans to make it easier for organisations to transfer data internationally, speeding up the process for making adequacy decisions in respect of restricted transfers to third countries and taking a pragmatic view about ensuring equivalent standards of data protection. 
  • New SCCs for restricted transfers out of the EEA:  The EU's new set of standard contractual clauses (SCCs) for restricted personal data transfers to third countries, which now reflect EU GDPR, address some of the issues about ensuring equivalent EU data protection in third countries raised in Schrems II and reflect the transfer scenarios that take place in the current market.

    Alongside this, the European Data Protection Board released guidance on carrying out transfer risk assessments when relying on SCCs for transferring data out of the EEA.

    For pre-existing data transfer agreements using the old model clauses, which ceased to be valid with effect from September 2021, there's a grace period until 27 December 2022 to update to the new SCCs. Our briefing discusses the new SCCs.
  • International Data Transfer Agreement and Addendum to SCCs have been laid before the UK Parliament:  In August 2021, the ICO launched a consultation on its draft International Data Transfer Agreement (IDTA), a UK addendum to allow use of the European Commission’s own SCCs in a UK context (the Addendum) and accompanying transfer risk assessment toolkit, for use in respect of restricted data transfers to third countries under UK GDPR. The IDTA and the Addendum are currently making their way through Parliament and are expected to be effective from 21 March 2022.

    Contracts concluded on or before 21 September 2022 on the basis of the "old" standard contractual clauses remain valid until 21 March 2024 "provided that the processing operations that are the subject matter of the contract remain unchanged" and "reliance on those clauses ensures that the transfer of personal data is subject to appropriate safeguards" (i.e. Schrems II requirements are met).  There will therefore be time for organisations to renegotiate existing arrangements. 

Lloyd v Google

The highly anticipated UK Supreme Court's ruling in Lloyd v Google LLC delivered good news for data controllers. It's clear from this test case that opt-out class actions seeking compensation for breaches of data protection law without proving loss suffered by individual class members are "doomed to fail". The court also held that a non-trivial breach amounting to "loss of control" was not enough of itself to warrant compensation under the UK's Data Protection Act 1998 – it was necessary to prove material damage or distress suffered as a result of the breach. 

This decision makes privacy class actions – and indeed other types of class action via this route - less likely, although the court acknowledged the possibility of bringing an opt-out representative claim to establish common liability followed by individual or opt-in group claims to prove damage (a "bifurcated approach"). However, in the wake of Lloyd v Google, such claims may be too complex and costly to bring in practice. Please see our briefing for further commentary. 

Data controllers on the receiving end of a raft of low value privacy/breach of confidence claims for trivial data breach incidents, often claiming distress, can also take heart from the UK High Court's robust dismissal of the claims in Warren v DSG Retail Ltd and Rolfe v Veale Wasbrough Vizards. These decisions make de minimis "no win, no fee" claims less attractive to claimant law firms.

UK Data Protection Reform

The UK Government has launched a wide ranging consultation, "Data: a new direction", on data protection reform in the UK.  It is not expected to result in radical changes as the review will build on the existing UK GDPR framework, but the UK Government wishes to take a more risk-based approach, reduce the red tape for businesses and drive economic growth and innovation. 

Proposed changes include:

  • introducing "privacy management programs" as a compliance requirement (while removing the requirement to appoint a data protection officer and undertake data protection impact assessments);

  • raising the materiality threshold for data breach reporting;

  • introducing a fee regime for individuals submitting data access requests and a cost ceiling for organisations responding to them;

  • introducing alternative mechanisms for data transfer;

  • changing the rules on cookies and direct marketing to allow organisations to run analytics cookies without consent;

  • making it easier for organisations to use, share and re-use data for research purposes and for innovation, in particular AI projects; and

  • reform of the ICO.

Please see our briefing for more detail.

For more information, please contact:

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Dan Reavill
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Helen Reddish
Intellectual Property / Technology

Details of the UK's approach to regulating AI are emerging, following publication of the EU draft AI Regulation, alongside proposals for possible changes to the exhaustion regime for intellectual property rights and parallel trade following the UK's departure from the EU.

The UK is also introducing legislation to protect users from harmful or illegal online content and finally, to create a legal obligation of security by design in respect of consumer Internet of Things connected devices, to ensure that no consumer connected device enters the UK market without basic cyber security measures.

Regulating AI

In April 2021, the EU introduced its draft AI Regulation aimed at creating a legal framework for regulating AI. In our briefing we discuss the possible approaches to regulating AI in the UK and US, now that the EU has set out its agenda.

What does the EU's draft AI Regulation propose?  The European Commission used a risk-based approach based on three tiers: (i) unacceptable risk, (ii) high risk, (iii) low risk. The use of unacceptable-risk AI systems is banned and includes uses that distort human behaviour and involve social scoring by public authorities. The main focus of the Regulation is on "high-risk" AI systems (defined in the Regulation), which will be subject to extensive technical, monitoring and compliance obligations. The draft AI Regulation sets out a system for the registration of stand-alone high-risk AI applications in a public EU-wide database. AI providers must provide "meaningful information" about systems and prepare conformity assessments. Certain systems in the low-risk category are subject to transparency obligations. The low-risk category is encouraged to self-regulate by implementing codes of conduct for example, or by adopting some of the requirements imposed on high-risk AI systems.

What about the UK's approach to AI regulation?  The UK regulatory framework is yet to be formally defined but AI is high up on the UK Government's agenda. Its recent consultation (see above), proposed ways in which the UK's data protection regime could be simplified for AI, and in September 2021, the UK Government published its National AI Strategy, setting out a 10 year plan to make the UK a "global AI superpower" by: (i) investing in the long-term needs of the AI ecosystem; (ii) ensuring AI benefits all sectors and regions; and (iii) governing AI effectively.  Rather than create a standalone framework like the EU, it looks more likely that the UK will prefer an approach of building out existing regulations.

Online Safety Bill

The UK's draft Online Safety Bill was published in May 2021 and creates a legal framework based on a series of duties of care for tech companies, such as social media platforms and search engines, to protect users from illegal or harmful content. This briefing takes a closer look at the Bill: who it applies to, the duties it creates, and how in-scope organisations can start preparing for it. 

UK Parliamentary Committees have proposed significant changes to the Bill, amid concerns that, on the one hand, it is neither clear nor robust enough to tackle illegal and harmful content in its many guises, while, on the other hand, it fails adequately to protect freedom of expression.  Their recommendations include extending the scope of the Bill to bring in paid-for advertising (in order to curb scams and fraud) and pornography sites (so that there is a legal duty to prevent children having access, regardless of whether they host user-to-user content or not).  There are also proposals to introduce new criminal offences for: cyberflashing; encouragement of self-harm; deliberately sending flashing images to people with epilepsy and sending false communications, such as deep-fake videos.

It remains to be seen whether the UK Government will take these recommendations on board.

Security by design for consumer connected devices

In our briefing we looked at plans to legislate to create a legal obligation of security by design in respect of consumer Internet of Things connected devices, with the overall objective being to ensure that no consumer connected device enters the UK market unless it incorporates basic cyber security measures. This will impact operators at different levels of the market.  In November 2021 the Product Security and Telecommunications Infrastructure Bill was published.  The proposed legislation will apply to any network-connectable devices and their associated services that are made available to consumers, or primarily to consumers (e.g. smart phones, connected cameras, TVs and speakers, toys and baby monitors). The proposals will have consequences for manufacturers, distributers, and importers of consumer connected devices.

The relevant security standards at this stage will follow in regulations at a later date which will align with the following basic security requirements that will apply to consumer connected devices:

  • A ban on universal default passwords. This includes those passwords set in apps which are incorporated into the product and provided by a third party.
  • A system will need to be set up so that vulnerabilities which are discovered can be reported to the manufacturer so that issues can be addressed.
  • Transparency as to the minimum period for which devices will be protected through the issuing of security updates.

An enforcement authority (to be appointed) will have powers to investigate, take action and guide businesses on how to comply.  The financial penalties for a single relevant breach are considerable (the greater of £10 million or 4% of qualifying worldwide revenue) i.e. on a par with those that can be issued for breach of UK GDPR.  

UK Exhaustion of Rights Regime

The UK Government is consulting on possible changes to the exhaustion regime for intellectual property rights and parallel trade following the UK's departure from the EU. The current legal framework will remain until the UK Government has assessed the economic impact of any changes. No timeframe has been set. 

What is exhaustion and parallel trade?  Once a good has been placed on the market in a specific territory by, or with the consent of, the rights holder, the IP rights protecting this good are considered “exhausted” and the holder loses the right to take legal action against infringement, or to control distribution and resale of physical goods, is lost. This supports a market of secondary sales of legitimate goods, also known as "parallel trade", where goods that are lawfully manufactured by the rights holder or under licence and first placed on the market are then moved across territorial borders. Parallel trade often occurs in order to benefit from price variations in different markets.

The current situation: Before the UK left the EU, the UK was a part of the EU’s regional exhaustion of IP rights regime. In this regime, the IP rights in goods legitimately first placed on the market anywhere in the EEA would be considered exhausted in the rest of the EEA. At present, the UK is unilaterally participating in the EEA regional exhaustion regime. This means that the IP rights in goods first placed on the market in the EEA are considered exhausted in the UK. Therefore, these goods can be parallel imported into the UK without the rights holder’s permission. However, following Brexit, the situation is not the same in reverse: goods placed on the market in the UK, cannot be exported into the EEA without the consent of the IP rights holder.

Available options:  The consultation discusses four possible regimes for the future. These are: 

  • UK+ (the current) regime – maintain unilateral participation in the EEA regional exhaustion regime
  • National exhaustion regime – parallel imports not automatically permitted from any country
  • International exhaustion regime – parallel imports automatically permitted from any country (assuming there is separate authorisation for regulated goods such as medicines)
  • Mixed regime, ability to parallel import will depend on any decision on treatment for a specific IP right, good or sector.

Ultimately the future approach will be a balancing exercise between the protection offered to creators, and the need to allow fair competition, wide consumer choice and fair market pricing. Most respondents to the consultation favoured maintaining the existing regime.

For more information, please contact:

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Dan Reavill
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Helen Reddish
Consumer Protection

Proposed reform of UK consumer law

The UK Government has been consulting on plans to reform UK consumer law, including:

  • giving regulators powers to impose fines of up to 10% of global turnover for breach of consumer legislation; and

  • new rules regulating subscription contracts (whether for the supply of goods or services), fake reviews and practices such as "drip pricing" in an online context (e.g. where products are advertised at an attractive headline price but it does not include fees and charges that are added during the purchasing process).

If implemented, these changes are likely to result in a significantly tougher regulatory environment for consumer-facing businesses.  For more detail, see our briefing on the proposals.

Also of note, particularly for online consumer-facing businesses, is a new pro-competition regime for digital markets involving a special unit within the Competition and Markets Authority dedicated to this area

For more information, please contact:

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Dan Reavill
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Jonathan Rush
Contract Law

Our round up of UK case law developments may be of interest to businesses which make use of English law-governed contracts. The UK Government is also looking at how our existing legal framework can accommodate smart contracts.

Recent Case Law Developments

  • Software distribution and agency arrangements: A recent judgment of the Court of Justice of the European Union has significant consequences for software providers which sell software via agents, both in the EU and the UK (notwithstanding Brexit).  Our briefing explains the ramifications.

  • Implied terms: In Nord Naphtha v New Stream Trading, the Court of Appeal ruled that a term requiring repayment in the event of non-performance could be implied into a contract for supply of fuel (even though there was no express right to repayment).  This is an example of the English courts placing considerable weight on the wider commercial context of the agreement – but as our briefing explains, clearer drafting could have avoided the dispute altogether.

  • COVID-19: A recent High Court judgment suggests that, in the absence of an express force majeure clause (or similar), it will generally be difficult for parties obtain relief from their contractual obligations for reasons connected with COVID-19. In this case, the dispute was over rent payable for premises used as a cinema which was unable to operate during the COVID-19 pandemic; the court ruled that despite these extenuating circumstances, the rent was still payable.

  • Unjust enrichment: A recent Court of Appeal ruling has emphasised that the principle of unjust enrichment should not generally be used to circumvent the terms of a valid contract;  the courts should normally only intervene where they were satisfied that a party had been enriched as a result of an "unjust factor" (such as mistake, incapacity or duress).

  • Economic duress: A recent Supreme Court ruling has confirmed that it will generally be extremely difficult for a party to avoid a contract by arguing that it was obtained through economic duress, such as threats to "make life difficult" for one party.  Although the test for duress was not met in this case, our briefing highlights some useful examples of situations where the pressure exerted by one party would be regarded as "illegitimate" and therefore illegal.

  • Joint ventures - sharing the profits: In a dispute between two partners to a joint venture (JV) agreement (Donovan v Grainmarket Asset Management), the Court of Appeal ruled that despite not having performed all of its obligations under the agreement, a JV partner was still entitled to its share of the profits. Our briefing explains what lessons this holds for businesses when drafting and negotiating JV agreements, particularly where the JV partners are acting both as investors and suppliers to the JV.

  • Force majeure: In a case which may be relevant to disputes arising out of COVID-19 or Brexit, the Privy Council has considered what should happen where an event occurs which necessitates changes to a contract, but the parties are unable to agree a variation. The Privy Council had to decide whether the supplier should be allowed to rely on a force majeure clause to relieve it of liability for future performance (Delta Petroleum v BVI Electricity Corporation).

  • Missed deadlines for the exercise of contractual rights: Many contracts require contractual rights to be exercised within a particular timeframe. What if you miss the deadline, but there was some justification for your delay?  Should you be allowed extra time? The UK Court of Appeal recently looked at these issues in Joseph v Deloitte.

  • Worked examples in contracts: Where a contract contains a complex clause or formula, it can sometimes be helpful to include worked examples. But how much weight should be placed on them, especially where they seem to depart from the wording of the relevant provision?  The High Court recently considered this issue in Altera Voyageur v Premier Oil.

  • Outsourcing: we have written the UK chapters of the PLC Global Practice Guide to Outsourcing and the Chambers Global Practice Guide to Outsourcing.

New Law Commission guidance on smart contracts

The Law Commission has advised the UK Government that existing law in England and Wales could accommodate smart legal contracts (see full paper and summary) without the need for statutory law reform.

A "smart legal contract" is one in which some or all of the contractual terms are defined in and/or performed automatically by a computer code/programme. Blockchain and distributed ledger technology, and other emergent technologies have vastly expanded the potential scope of both use cases and users of smart legal contracts, as well as giving rise to novel issues arising out of the application of existing law.

The Law Commission concluded that current legal principles can apply to smart legal contracts in much the same way as they do to traditional contracts, albeit with an incremental and principled development of the common law in specific contexts, noting that the flexibility of the common law ensures that the jurisdiction of England and Wales provides an ideal platform for business and innovation in this area.

It remains to be seen exactly how the English courts will resolve those novel issues, particularly where smart legal contracts are deployed on fully-distributed blockchains in which the respective parties' true identities and location may not be known and there remains considerable debate as to the true nature, status and characterisation of the "on-chain" digital assets that are exchanged.

For more information, please contact:

Dispute Resolution

Our article below discusses proposed reform of pre-action protocols in the UK Civil Procedure Rules.

For a more comprehensive overview of key developments in the dispute resolution world over the last three months or so, please see the new year edition of our quarterly disputes newsletter

Reform of pre-action protocols

The Civil Justice Council has launched a consultation on proposed reforms to the Pre-Action Protocols in the Civil Procedure Rules, having produced a detailed report on the same topic. The Pre-Action Protocols presently contain a series of steps which parties should take, or at least consider taking, prior to commencing court proceedings, on pain of costs or case management consequences should they fail to do so. The reforms to that process which are being considered include:

  • strengthening the existing requirements under the Protocols to detail the basis of claims/defences and provide supporting disclosure via pre-action correspondence within set timeframes, and possibly even requiring that correspondence to be supported by a Statement of Truth (albeit that it is acknowledged that this may be a step too far);

  • formally recognising that compliance with the Protocols is mandatory, save in cases where urgent court intervention is required;

  • imposing more stringent penalties for non-compliance with the Protocols, including in certain circumstances strike out of the relevant claim/defence;

  • imposing a new good faith requirement on parties to try to resolve or narrow their dispute at the pre-action stage;

  • imposing new requirements on parties to complete a joint "stocktake" report or list of issues prior as a final step before commencing proceedings; and

  • introducing a new summary costs procedure to deal with the costs of disputes resolved at the pre-action stage.

The legal community's response to the reforms will be interesting to watch, as while the proposals could conceivably result in more disputes settling before they reach court, they could also result in a very significant front loading of costs before court proceedings have even been issued (and potentially an overall increase in costs over the life of a dispute as well). The new reforms, and in particular suggestions like the new overarching duty of good faith, also have the potential to give rise to satellite litigation.

For further information, please contact

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Rob Fell
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Hannah Hartley
Company Law and M&A

Our summary below looks at recent case law demonstrating the need for clear drafting in M&A-related contractual documents, best-practice financial reporting by private equity-backed companies, an extension to the directors' disqualification regime and proposals to improve the quality and value of financial information on the UK companies register.

Warranty claims – Lessons in clear drafting from recent UK Court judgments

In recent years, we have witnessed a trend in UK cases on contractual interpretation for courts to adopt a more literal interpretation of imprecise drafting, exemplified by the cases of Arnold v Britton [2015] and Wood v Capita Insurance Services [2017]. This represents something of a shift away from the approach taken previously by UK courts, which enabled "contextual factors" and “commercial common sense” to play a role in contractual interpretation. In essence, there is now less room for contextual and commercial factors to rescue unclear drafting.

In the recent cases of Equitix EEEF Biomass 2 Ltd v Fox and Butcher v Pike , the UK courts have provided some useful lessons on the need for clear drafting to exclude liability for warranty claims, in particular:

  • a warranty claim, where the buyer was aware of facts relevant to the claim prior to the sale
  • the buyer's duty to mitigate loss
  • financial caps on the seller's liability, and
  • in relation to the effect of disclosures.

In the Equitix case:

Buyer awareness: the Share Purchase Agreement (SPA) contained the following:

  • A broad confirmation that the buyer had no knowledge of any breach (there was a dispute about whether this was limited to the actual knowledge of the buyer's directors); and
  • A narrower exclusion of liability for any breach of which certain directors had actual knowledge.

The court decided that the asymmetry in the definition of awareness must have been intentional, highlighting the importance of drafting consistently. Where inconsistency is intentional this should be made clear.

Mitigation of loss: The court rejected the sellers' argument that the SPA imposed a duty on the buyer to take steps to mitigate its loss after discovery of the breach of warranty. Under UK common law, the measure of damages will look at the loss at the point of purchase. Steps taken or not taken by the buyer to mitigate its loss after purchase will be irrelevant. Clear wording would be needed to impose a contractual threshold higher than that at common law.

Financial caps on liability: The SPA capped the Sellers' liability "in respect of"… "any claim under this Agreement for breach of the Warranties"at £11m. The Sellers argued that the cap applied to interest and costs as well as damages. The court disagreed, as a claim for interest or costs is made under the court's jurisdiction to make ancillary orders, not under the SPA, so would fall outside the contractual liability cap. The judge determined that the phrase "in respect of" is narrower than, for example, "arising out of or in connection with" and there was no specific mention of interest or costs in the contract.

In Butcher v Pike, the UK Court of Appeal held that, in relation to a warranty claim, the sellers could rely on disclosures made outside the relevant disclosure letter. Warranties were given subject to various limitations, including matters 'fully, fairly and specifically disclosed' in the disclosure letter. The application of these limitations was excluded where there had been fraud or ‘negligent non-disclosure’.

The sellers argued that the reference to 'non-disclosure’ here could include disclosures outside the disclosure letter as it did not explicitly limit the provision to disclosures set out in the disclosure letter. The courts agreed, deciding that this omission must have been intentional.

Financial Reporting by Private Equity-Backed Companies

The Private Equity Reporting Group has published its 14th annual report on the UK private equity industry's conformity with best practice under the Walker Guidelines and an updated reporting guide for portfolio companies. The report confirms a shift back to normal reporting timelines following the Covid-19 pandemic.

The Walker Guidelines will be reviewed in 2022 to take account of changes in the broader narrative reporting landscape (revised guidelines expected in 2023-24), but PERG suggests the following immediate changes:

  • Improving and enhancing the depth of disclosure on environmental matters.
  • Improving and enhancing disclosures on gender diversity to cover policies and actions to promote diversity (including other characteristics such as ethnicity and sexual orientation).
  • Improving the level of disclosure on non-financial KPIs that are monitored by the company to assess its performance, for example employee-related matters.
  • Focusing on improving the timeliness and accessibility of reports. Private equity firms are encouraged to be proactive.
  • Reviewing guidance to improve reporting, including reporting on how directors have complied with their duty to act in the company's best interests under s172 of the Companies Act 2006.

Rating (Coronavirus) and Directors' Disqualification (Dissolved Companies) Act

The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act came into force on 15 February 2022, extending the scope of the current disqualification regime to include former directors of dissolved companies and introducing new powers to investigate conduct and commence proceedings against former directors. The Act applies with retrospective effect to enable prior conduct to be investigated.

Corporate Transparency and Register Reform

On 28 February 2022, the UK Government published a white paper on Corporate Transparency and Register Reform, following consultations in 2019/20. The white paper sets out proposed changes to improve the quality and integrity of available information about companies and other business entities. These changes include:

  • a fundamental change to the role and statutory powers of the Companies Registrar, from a passive administrator of company information to an active gatekeeper with powers to query and remove information in order to safeguard the integrity of the register;

  • requirements for identity verification for directors, PSCs (Persons with Significant Control) and others;

  • in place of the proposed ban on corporate directors, new restrictions imposing a maximum of one “layer” of corporate directors, which must be based in the UK, and requiring that the natural persons directing that corporate director will be subject to identity verification;

  • changes to improve the quality of financial information on the register, such as  requiring accounts to be filed digitally and to be fully tagged using i-XBRL; and

  • new "gateways" for data sharing with law enforcement, other government bodies and the private sector.

Register of overseas entities

The UK Government has also just published the Draft Economic Crime (Transparency and Enforcement) Bill which will introduce a public register of beneficial owners of overseas entities that own UK real estate. Beneficial owners will be identified in a similar manner to Persons with Significant Control ("PSCs") under the UK's existing PSC Regime. The Government proposed this register in 2016 as it saw the lack of transparency in foreign ownership of UK real estate as holding the potential for abuse by way of money laundering.

For more information, please contact:

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Carys Clipper
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Andrew  Gillen
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Beliz  McKenzie
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Ian Shawyer
Equity Capital Markets

Changes to UK listing and prospectus regimes

In 2021 a review was launched to consider the efficiency, attractiveness, and competitiveness of the UK listing regime post-Brexit. Some changes have already been made to the FCA's Listing Rules as a result, including making it easier for special purpose acquisition companies (SPACs) to list in London. The FCA has subsequently consulted on more structural changes and we expect a big shake-up later this year.

Similarly, the Treasury is looking at a radical post-Brexit overhaul of the prospectus regime and has recently published the outcome of its review. The aims of this reform include facilitating wider ownership of public companies; improving the efficiency of public capital raising and improving the quality of investor information.

For more information, please contact:

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Jane Bondoux
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Andrew  Gillen
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Beliz  McKenzie
Corporate Governance

Major changes afoot for UK audit and corporate governance regime

In March 2021, the UK Government published a consultation on wide-ranging reforms intended to strengthen the UK's audit, corporate reporting and corporate governance system, and responded to recommendations made by earlier reviews. In particular, it proposed that large public companies would be held to higher standards of governance and directors would have increased liabilities (for example greater accountability for internal controls, dividends and capital maintenance, new reporting requirements, investigation and enforcement powers for the audit regulator to deal with wrongdoing by directors and strengthening malus and clawback provisions within executive directors' remuneration). We await the outcome of the consultation.

As part of the reforms, the UK's Financial Reporting Council (FRC) will also be replaced with a new independent regulator, the Audit Reporting and Governance Authority (ARGA).

For further information, please contact

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Aisling Arthur
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Neal  Watson
Banking and Finance

LIBOR discontinuation

LIBOR, the reference rate of interest for many UK-based financial contracts, was for the most part discontinued on 31 December 2021. SONIA (the "Sterling Overnight Index Average") is the preferred replacement rate for LIBOR in sterling loan markets. Throughout 2021, parties to finance documents worked to transition existing LIBOR-priced debt. LIBOR exposures will inevitably remain, so some sterling LIBOR settings are now being published on a changed "synthetic" methodology for 12 months following 1 January 2022 (no longer relying on submissions from panel banks). In most cases a reference to "LIBOR" in an existing contract will be treated as if it has always provided for the reference to include the synthetic benchmark. For further details, see our Q3 2021 update.

Parties should continue to identify older contracts (not just loans) which reference LIBOR and engage with counterparties to amend affected contracts. Our commentary on consequences for other commercial contracts which reference LIBOR (for instance in late payment clauses) is available here. This includes suggestions for alternative reference rates.

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Matthew Ayre
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James Bell
Corporate Taxation

The UK is set to introduce a new tax privileged regime for qualifying asset holding companies (QAHCs) from April this year. In our summary below, we also consider the impact of:

  • the international agreement reached on addressing the tax challenges arising from the digitalisation of the economy. The two-pillar corporate tax reform plan forms part of the OECD's project tackling base erosion and profit shifting (or BEPS) and

  • the draft directive (ATAD 3) designed to tackle misuse of entities resident in EU member states that do not have sufficient substance.

Finally, you will find an overview of the new rules requiring large UK businesses to notify HMRC of the adoption of uncertain tax treatment and the levy on regulated entities which is designed to combat economic crime.

Introduction of a new tax privileged regime for qualifying asset holding companies (QAHCs)

The UK is set to introduce a new tax privileged regime for qualifying asset holding companies (QAHCs) from April this year (2022).

For an asset holding company to come within the regime it must meet several eligibility criteria including that (broadly) it is an investment company that is 70% owned by "good" investors (including, diversely owned funds, UK REITs, tax exempt sovereign wealth funds and most pension funds).

The wide-ranging tax benefits include a broad exemption from tax on gains from shares (other than in UK property rich companies) and non-UK land, a deductions regime that should keep taxable income very low (by giving deductions for profit-related interest) and a complete exemption for foreign property business income. In addition, there are tax benefits for investors, with certain of the normal tax rules disapplied to make it easier for returns from the QAHC to be passed to investors in capital form.

The new regime is designed to allow the UK to compete with vehicles on offer in rival European fund centres, in particular Luxembourg and Ireland. Its availability will be particularly welcome for many managers who have been concerned about the need to build substance in Luxembourg, especially in the light of the draft shell entity directive (ATAD 3).

International tax reform - OECD's BEPS Pillar One and Pillar Two proposals

International agreement has been reached on a two-pillar solution to address the tax challenges arising from the digitalisation of the economy. The two-pillar corporate tax reform plan forms part of the OECD's project tackling base erosion and profit shifting (or BEPS).

Pillar One

Pillar One aims to align taxing rights more closely with the location of customers or users. The Pillar One rules will reallocate 25% of the profits in excess of 10% of revenue of a multinational enterprise (MNE) to market jurisdictions where the MNE has a substantial engagement in that market, regardless of whether it has a physical presence there.  This measure will only apply to the largest businesses in the world - MNEs with annual global turnover above €20bn (reducing to €10bn in no earlier than seven years) that have a profitability threshold above 10% and do not fall within an exclusion. There will be exclusions for extractives and regulated financial services, the details of which are yet to be published.

The OECD envisages that this additional taxing right for local jurisdictions will be implemented through a multilateral convention, and where necessary by way of correlative changes to domestic law, with a view to allowing it to come into effect in 2023.

In addition, Pillar One also contains rules to simplify and streamline the arm’s length principle for related party distributors, as well as mechanisms to provide tax certainty.

Pillar Two

The main plank of Pillar Two is the Global anti-Base Erosion rules (GloBE rules). These rules seek to establish a global minimum corporate tax rate through a set of interlinked rules.  The rules will apply to MNEs that meet a €750m turnover threshold (determined under the BEPS country by country reporting rules). There will be various exclusions, including for investment funds that are ultimate parent entities of an MNE group and pension funds (and any holding vehicles used by such funds).

The GloBE rules will impose top-up taxes where the effective rate of tax of a MNE in a jurisdiction is below the global minimum corporate tax rate (15%). The global minimum corporate tax rate will be effected by two rules: the income inclusion rule (IIR) and the under-taxed payment rules (UTPR). 

The IIR taxes a parent entity on its proportionate share of a low-taxed constituent entity’s income (similar to a CFC charge). Where top-up tax is required but the IIR does not apply (for example because the only parent is located in a low tax jurisdiction), the UTPR will apply.  The UTPR imposes top-up taxes on other group entities that meet various criteria.

In addition to the GloBE rules, Pillar Two also contains a subject to tax rule (STTR) which will allow source taxation (for example, withholding taxes) on certain cross-border related party payments that are subject to tax below a minimum rate of 9%.

The OECD's (ambitious) timetable is for jurisdictions to legislate the Pillar Two rules in 2022, with most of them taking effect from 2023 (the UTPR would take effect in 2024). To this end, in December 2021 the OECD published Model Rules for GloBE and it is anticipated that commentary on them will be published in the first quarter of this year.

From a domestic UK perspective, in January 2022 the UK Government launched a consultation on the implementation of the GloBE rules in the UK.  As part of this, the Government is exploring whether to introduce a domestic minimum top up tax. Broadly, this would allow the UK to impose top up tax on low-taxed profits of a group’s entities in the UK, rather than allowing a foreign jurisdiction to do so.  The Government anticipates that the parts of GloBE relating to the IIR would be included in Finance Bill 2022-23 and would have effect from 1 April 2023 and that both the UTPR and any domestic minimum tax would be introduced from 1 April 2024 at the earliest.

In addition, the EU has published a draft directive for the implementation of the GloBE rules in the EU. Under the directive, the GloBE rules would come into force in the EU on 1 January 2023, with the exception of the UTPR for which the application will be deferred to 1 January 2024.

EU directive on shell entities (ATAD 3)

The EU Commission has published a draft directive (ATAD 3) designed to tackle misuse of entities resident in EU member states that do not have sufficient substance.

Entities within the scope of the directive are subject to adverse tax consequences. There are also increased information reporting requirements which extend to entities at risk of being within scope as well as those that actually are.

Our briefing on the shell entity directive includes a flowchart to help businesses navigate the new rules and assess whether the directive is likely to apply to them.

Notification of uncertain tax treatment

A new set of rules will be introduced from this April (2022) which will require large businesses (those with a UK turnover exceeding £200m and/or a UK balance sheet exceeding £2bn) to notify HM Revenue & Customs (HMRC) if they have adopted a tax treatment which is "uncertain".  A notification will be required if either of the following two triggers arise:

  • The taxpayer adopts a tax treatment that differs from HMRC's known position; or

  • A provision has been recognised in the accounts of the taxpayer to reflect the probability that a different tax treatment will apply to the transaction to that adopted.

A third trigger (substantial possibility that a court or tribunal would find the treatment adopted to be incorrect) was not included in the current rules but remains under review by the UK Government.

The threshold for notifications is £5m.

Economic crime levy

A levy (from the AML regulated sector) is to be introduced to fund combatting economic crime. It is likely to apply to many within the asset management sector including portfolio managers, collective investment undertakings and investment advisers. The levy will be paid as a fixed fee based on which of four size bands an AML-regulated entity's UK revenue falls. The bands range from entities with small UK revenue (not more than £10.2m), which will be exempt, to those with very large UK revenue (over £1bn), for whom the levy will be £250,000.

The levy is to first apply for entities that are regulated during the financial year from 1 April 2022 to 31 March 2023, and the amount payable is to be determined by reference to their size based on their UK revenue from periods of account ending in that year. Amounts will be payable after the financial year, so the first payment will be due in the financial year from 1 April 2023 to 31 March 2024.

Please see the Incentives and Personal Taxation section below for more news on the UK's tax regime.

For further information, please contact

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Emily Clark
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Laura Hodgson
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Ian Zeider
Incentives and Personal Taxation

For UK employers with workers in the EU, the EU/UK Trade and Cooperation Agreement (TCA) contained some welcome clarification on their social security obligations.

We also take a look at the new UK rules on the taxation of contractors and possible measures to address concerns about the potential misuse of "umbrella" companies, where the company pays the employee's salary, operates PAYE and manages their employment rights, with responsibility for sourcing the employee's work sitting with an employment business further up the labour supply chain.

Finally, a new 1.25% levy is to be introduced from April 2022 to fund adult social care reforms and enable the UK's National Health Service to tackle the COVID-19 backlog.

National Insurance contributions

For UK employers with workers in the EU, the EU/UK Trade and Cooperation Agreement (TCA) contained some welcome clarification on their social security obligations from 1 January 2021 following the end of the transition period.  Importantly, a new Protocol on Social Security Co-ordination was agreed, replicating many of the previously existing EU rules, including those for ‘posted’ workers (known as ‘detached’ workers). All EU member states have opted into these new rules which means that workers moving temporarily between the UK and the EU will continue to pay social security contributions in their home state and receive necessary healthcare treatment in the country where workers are temporarily posted.  It is still possible for EU Member States to opt-out at any time; however, they must give the UK notice and any postings that began before the opt-out will be protected.  In November, the UK and Switzerland also entered an agreement on social security coordination which largely replicates the pre-Brexit rules.

Taxation of contractors

Some workers in the UK provide their services on a self-employed basis through an intermediary, such as a "personal services company"("PSC"), where the worker is both an employee and shareholder of the PSC. This can have significant tax advantages for the worker and to combat tax avoidance in this area, legislation was introduced which made it impossible to avoid UK tax simply by providing services through a personal services company. The rules (known as the "off payroll working rules") deem payments made to a PSC to be employment income if, were it not for the existence of the PSC, the relationship between a business organisation and worker would be treated (for tax purposes) as one of employment.

Until 2017, where the rules applied, it was the PSC that was responsible for accounting for the income tax and social security contributions due. The Government modified the rules in 2017 with the effect that, in the case of off-payroll workers in the public sector, it is the business (or other person paying the PSC's fee) which must collect the tax and social security contributions. These changes were extended to large and medium-sized businesses in the private sector from April 2021 creating additional administrative and financial burdens for the relevant parties.

Although HMRC announced that they would take a gentler compliance approach for the current tax year as companies adjust to the new rules, we understand that they have set up a new task force to look into unpaid tax.  It is therefore important that those engaging workers understand the supply chain through which they are provided, are aware of their obligations under the rules and have robust procedures in place to deal with the new rules.

The Government has also recently launched a call for evidence on the use of "umbrella" companies; typically, these companies pay the employee's salary, operate PAYE and manage their employment rights with responsibility for sourcing the employee's work sitting with an employment business further up the labour supply chain. While the Government understands the useful role that umbrella companies can play in supporting a more flexible labour market, it is concerned that some operators of these arrangements are abusing the system through poor employment practices and lack of tax compliance. 

New Health and Social Care Levy

On 7 September, the UK Government announced the introduction of a new 1.25% levy which is intended to pay for adult social care reforms and enable the country's National Health Service to tackle the COVID-19 backlog.  The levy (to be called the health and social care levy) will apply from April 2022 and will initially be collected by way of a 1.25 percentage point increase to the rates of National Insurance contributionsFrom April 2023 the levy will be charged separately and the rates of NICs will return to their 2021/22 tax year levels. In the context of employments, the levy will be paid by both employees and their employers (i.e. an additional 2.5% in total). For the self-employed (such as contractors or partners) the levy is payable by the self-employed person only. The rates of tax on dividend income will also be increased by 1.25 percentage points from this April.   There have been some calls for the NICs increase to be postponed given the recent rise in living costs, but the Government has not indicated that there will be any delay.

At this stage, we don't yet know whether it will be possible to transfer the employers' liability to pay the levy to an employee (once the levy becomes chargeable separately from 2023) nor whether it will be governed by the protocol on social security agreed with the EU (referred to above).

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UK Pensions

The new Pension Schemes Act will require those engaged in corporate activity involving a UK business with a defined benefit (DB) pension scheme, such as the sale of a material part of a business and the granting of security that has priority over debt to the scheme, to consider even more carefully than now whether any proposals could adversely affect the security of DB scheme members’ benefits and comply with new duties to notify the Pensions Regulator about such activities.

ESG requirements are also affecting the UK pensions industry, with the largest pension schemes already subject to climate-related disclosure obligations and smaller schemes being brought into scope in the coming months.

Defined benefit schemes - Pension Schemes Act 2021

The Pension Schemes Act 2021 includes significant provisions concerning UK defined benefit (DB) pension schemes.  These include: 

  • a requirement for DB schemes to have a long-term funding and investment strategy (not yet in force but based on an integrated risk management approach already expected by the Pensions Regulator);

  • new duties to notify the Pensions Regulator about certain corporate activities (currently expected to apply from April 2022); and 

  • new criminal and civil penalties for acts or omissions (by anyone) which put scheme members' benefits at risk without reasonable excuse (in force since 1 October 2021).

In connection with the legislation, the Pensions Regulator will issue a new DB scheme funding code of practice.  This will focus on schemes having long-term objectives, for example: buy-out with an insurer, consolidation with another scheme or commercial consolidator, or self-sufficiency.  Trustees will be expected to have a journey plan under which the scheme reduces its dependency on the employer as the scheme matures.  Meanwhile, the Regulator is expected to continue its proactive focus on the level of deficit contributions made by employers compared with dividends and other shareholder distributions.

Those engaged in corporate activity will need to make notifications to the Regulator (and the pension scheme trustees) in more circumstances than at present and at an earlier stage.  These new circumstances are expected to include the sale of a material part of a business and the granting of security that has priority over debt to the scheme.  The new criminal and civil penalties mean that they will also have to consider even more carefully than now whether any proposals could adversely affect the security of DB scheme members’ benefits.  They may also need to declare to the Regulator how any detriment will be mitigated.

For more information please see our briefing note on the Act.

ESG and climate change

Please see the ESG section above for details of new legislation requiring climate-related disclosures by pension scheme trustees.

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Real Estate

2021 was a busy year for UK real estate, overshadowed by the ongoing impact of the Covid-19 pandemic. Other key trends included continuing residential leasehold reform and the UK Government's response to the Grenfell Tower fire. Also see the ESG section above for the real estate implications of the new Environment Act.

New landlord and tenant legislation regarding COVID rent arrears

New measures to facilitate the resolution of disputes over rent arrears due to forced closures during the pandemic are to be introduced in the UK under the Commercial Rent (Coronavirus) Bill, along with a new code of practice for commercial property relationships. The Bill will create a binding arbitration process where the landlord and tenant are unable to reach agreement and is expected to be passed in March this year.

Residential leasehold reform

Future legislation: - The UK Government has committed to introduce legislation to:

  • reform the process of leasehold enfranchisement whereby tenants can extend a lease or buy the freehold of their building;
  • give leaseholders of flats and houses the same right to extend their lease agreements “as often as they wish, at zero ground rent, for a term of 990 years”; and
  • enable leaseholders, where they already have a long lease, to buy out the ground rent without having to extend the lease term.

Commonhold - The UK Government is taking advice from a panel of leasehold groups and industry experts on the implementation of a reformed commonhold regime and to prepare homeowners and the market for the widespread take up of commonhold for new supply of flats. More information is set out here.

Ground rents in leases of residential properties - The Leasehold Reform (Ground Rent) Bill 2021 will restrict ground rents to a token amount on most newly established leases of houses and flats with a term over 21 years, and will prohibit administration fees in relation to those rents, subject to certain exemptions. The Bill is expected to be enacted soon.

Unsafe cladding

The major fire at a residential tower block in London in 2017, the Grenfell Tower, found to have been caused by unsafe cladding, has resulted in various Government measures to improve the safety of high-rise buildings:

  • the introduction of a residential property developer tax;
  • the introduction of a new Building Safety levy, as discussed here;
  • measures to facilitate mortgage lending for buildings under 18m in height where there may be fewer safety concerns; and
  • measures to protect leaseholders in buildings exceeding 11m in height from the cost of work to address safety issues with any cladding on their building. Housebuilders have been given two months to agree to fund the new plan, or the Government will impose a solution in law.

Planning reform

In 2022 we will start to see the impact of various planning changes which were introduced in 2020 but were subject to an unsuccessful challenge in the UK courts in 2021. Occupiers are now able to move between retail, professional services, restaurant and business use without obtaining planning consent. They will still need to obtain planning consent for any facilitating works to the premises and, if occupying as a tenant, any consents required under their leases. At present, most leases still refer to the previous use class order, so it will be interesting to watch the extent to which tenants can begin in 2022 to make use of the new planning freedoms to change use. For more on this topic, see our reflections here.

UK Land Registry changes

The Land Registry has continued to evolve its digital processes, having recently accepting electronically singed signatures and developing a platform whereby users can manage their portal applications and correspondence in one place.  From November 2022 only digital applications (instead of customers uploading PDFs) will be accepted for simple updates to existing titles via the online customer portal. Click here for more details

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