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What tax changes might L-day bring?


20 July is 'L-day' – the day on which the government publishes the first draft of legislation to be included in the finance bill 2022-23.

On previous L-days the government has also published consultations on measures that may lead to legislative changes further down the track.

These are our predictions of the key business tax legislation and consultations that we could see published on L-day.

OECD BEPS International Tax Reform

The key item expected to be published is legislation implementing international tax reform agreed between members of the OECD. These measures are the latest development in a lengthy project by the OECD to combat base erosion and profit shifting or "BEPS".

In Autumn 2021, international agreement was reached on a two-pillar solution to address the tax challenges arising from the digitalisation of the economy. Whilst international consultation on the detail of "Pillar One" (rules which aim to align international taxing rights over the profits of extremely large businesses more closely with the location of customers or users) is ongoing, Pillar Two is much more advanced.

The main plank of Pillar Two is the Global anti-Base Erosion rules (GloBE rules) that seek to establish a global minimum corporate tax rate of 15% for multinational enterprises (MNEs) that meet a €750m turnover threshold, although various entities, such as pension funds, will be excluded. The GloBE rules do not require low-tax countries to increase their corporate tax rates to 15% (although they may lead to them doing so). Instead, broadly, other countries are required to impose top-up taxes on the relevant MNE to the extent it pays tax at a rate below that level elsewhere. Even if a country's headline corporate tax rate is 15% or above, an MNE may have an effective tax rate for GloBE purposes there of less than 15%. To prevent the local tax shortfall being subject to top-up taxes elsewhere, that country may choose to introduce a domestic minimum top-up tax, and we may find out on L-Day whether the UK will follow that approach.  

In January 2022 the Government launched a consultation on the implementation of the GloBE rules in the UK with an aim, at that time, of an implementation date of 1 April 2023 for the first tranche of the rules. This led to concerns from businesses that the implementation of extremely complicated and far-reaching new rules was being rushed, and it was recently announced that this measure will now have effect in relation to accounting periods commencing on or after 31 December 2023. This is in line with the expected timing for EU implementation of the GloBE rules, although agreement is yet to be reached between EU Member States. 

R&D tax reliefs

In Spring Statement 2022 the government stated that it would legislate to reform the research and development regime. It is expected that relief for overseas R&D expenditure will be restricted unless there are material factors (e.g. geography) or regulatory reasons for carrying out the R&D activities overseas. It was also announced that all cloud computing costs associated with R&D and all mathematics underpinning R&D will qualify for R&D relief. It is not clear whether this legislation will be published on L-Day, or around the time of the Autumn Budget 2022.

Online sales tax

The government consulted this Spring on the potential introduction of a new online sales tax, aimed at funding a reduction of business rates for physical retailers.  This has proven quite controversial, with its scope being a particular area of difficulty – for example, should "click and collect" be caught?  It is possible that a further consultation could be published on L-Day.

Tax relief for capital investment

Consultation is expected at some point on reforms to tax relief for capital investment ahead of the Autumn 2022 Budget. Businesses may be particularly interested in this, given the upcoming expiry of the availability (in April 2023) of the "super deduction". New measures could include a permanent higher annual investment allowance, increased rates of writing down allowances and new first year allowances.

Stamp taxes modernisation

It is possible that there will be a consultation on the modernisation of stamp taxes on shares. Last summer the government confirmed that it would explore the feasibility of replacing the current two (often overlapping) taxes (stamp duty and stamp duty reserve tax) with a single self-assessed tax on shares.

Investment funds

Flowing from the wide-ranging review of the UK funds landscape that the government is carrying out, we may see draft legislation for further changes to the real estate investment trust (REIT) rules, designed to enhance the attractiveness of that vehicle and a consultation on the VAT treatment of fund management fees.


This article was originally published in the FT Adviser on 19 July 2022.

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