• Finance Bill 2016: License to snoop?
    HMRC’s new information powers and EU State Aid

    By Satwaki Chanda


    Those of you who aren't interested in Euro-law or compliance matters will probably be tempted to skip this article. While these are extremely important topics, I must confess, I too find substantive tax law more interesting. But instead of turning the page, I strongly suggest that you carry on reading. For these new rules aren't confined to a single particular tax pigeonhole, but will affect a range of tax incentives such as the EIS and VCT Schemes.

    In certain cases, failure to comply with the new rules may lead to a denial of the relevant tax break.

    What are these new information powers about?

    Tucked away towards the end of this year's Finance Bill is a series of clauses which are to do with "State aids granted through provision of tax advantages". These clauses, when enacted, will empower HMRC to request information from any person who is claiming a tax incentive under any of the statutory schemes that are listed in the legislation.

    There is nothing wrong with any of these schemes. The tax reliefs are all kosher as they have government backing. However, they are all subject to EU State Aid approval, and the new information powers are being introduced to ensure that the UK is complying with its own EU obligations1.

    The schemes that are to be subject to the new information powers fall into two categories:

    • Category One - the information must be supplied as part of the application for the relief to be granted. A failure to comply will result in the claim being refused2;
    • Category Two - the information must be provided, but failure to comply does not necessarily lead to a loss of the tax break in question. In particular, there is no requirement to supply the information as part of the claim for the relief. A request for information can even be made after the relief has been granted. It isn't however clear what the penalty is for failure to comply3.

    So which is which?

    Category One - if you don't tell HMRC what they want to know, they won't give you the tax break for the following schemes:

    • The Business Premises Renovation Allowance ("BPRA");
    • Enhanced capital allowances for zero-emissions goods vehicles;
    • Enterprise zone allowances;
    • "Cultural reliefs" such as film, television, theatre and orchestra relief (yes, we are going to have something called orchestra relief soon4 - tax breaks for trumpets anyone?);
    • The R&D tax credit for SMEs and vaccine relief.

    Two of the reliefs on the list - BPRA and vaccine relief - are set to expire in March 2017 and are not going to be renewed5. Since the new information powers relate to claims made on or after 1 July 2016, these two schemes are unlikely to be affected in practice6.

    Category Two - where supplying the information to HMRC is not a condition precedent to a successful claim for relief. The schemes involved are:

    • Reduced rate of climate change levy;
    • Two of the risk capital schemes, the EIS and VCT schemes. Note that the SEIS (the seed version of EIS) and Social Enterprise Investment Schemes are not on the list at the moment.

    It must be stressed at this stage, that these powers do not come into force automatically on the passing of the Finance Bill. The relevant clauses state that the Commissioners may ask for the relevant information, not that they will ask for it. The actual power will no doubt be enacted in the form of a statutory instrument, setting out the precise circumstances in which HMRC may request the information, what information must be provided and the manner in which it must be given.

    What do they want to know and why do they want to know it?

    So far we are told that for a Category One request, HMRC may require the following information (but the list is not exhaustive)7:

    • Information about the person claiming the tax relief and/or that person's activities;
    • Information about the subject-matter of the claim for relief;
    • Any other information which relates to the grant of State Aid through the provision of the tax advantage in question.

    For a Category Two request, HMRC may require the following information (again the list is not exhaustive)8:>

    • Information about the person to whom the request has been given. Note that this person is not necessarily the same as the person claiming the tax relief. For example, for the EIS and VCT schemes, the investor benefits from the tax breaks, but the request is made to the relevant company in which the investment is made;
    • Information about any other person benefiting from the tax advantage (such as the EIS/VCT investor);
    • Information about the tax advantage and the circumstances in which it was obtained;
    • Any other information which relates to the grant of State Aid through the provision of the tax advantage in question.

    But what are they going to do with this information? We are told that it's for the purpose of complying with the UK's obligations to the EU. But one can't help feeling suspicious whenever a public body wants information for what seems, on the face of it, an innocuous reason. ("Oh, don't worry, it's got nothing to do with you, it's just for monitoring purposes.").

    So what do they mean when they say that they will also be able to publicise details of whatever they find though a "legal gateway"?9 And what information will be disclosed about the person or business receiving the requisite amount of State Aid?

    We are told that only persons who have obtained at least 500,000 Euros worth of State Aid will be affected, but the actual amount of the tax advantage will not be disclosed10. However, we are not told whether there will be any safeguards to protect those persons whose information is to be made public. And this is a slightly disturbing state of affairs.

    More red tape?

    It sure looks like it. It is too early to say what impact these new information powers will have. However, when one considers that the EIS and VCT Schemes have recently become even more complicated as a result of EU State Aid rules, one wonders whether another dose of Eurolaw is really welcome.

    This article can be downloaded in pdf format at Academia.edu

    1. FB 2016 Cl 168-170 and the corresponding Explanatory Notes.
    2. FB 2016 Cl 168(2), Schedule 24, Part 1.
    3. FB 2016 Cl 168(5), (6), Schedule 24, Part 2.
    4. FB 2016 Cl 50, Schedule 8.
    5. For BPRA - CAA 2001 ss 360A, 360B(1), (2), Business Premises Renovation Allowances Regulations 2007/945 reg 2A, and Budget 2016, paragraph 2.91; for vaccine relief - FB 2016 Cl 43.
    6. FB 2016 Cl 168(10).
    7. FB 2016 Cl 168(3).
    8. FB 2016 Cl 168(9).
    9. FB 2016 Cl 169. The term "legal gateway" is not defined in the draft legislation; it is a phrase that is used in the Explanatory Notes to FB 2016 Cl 169 at paragraphs 1, 7-10.
    10. FB 2016 Cl 169 Explanatory Notes paragraph 10.
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  • The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.

Satwaki Chanda

Owner and publisher at Tax Notes, an educational site containing articles on UK taxation, with a particular emphasis on business and property taxes.

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