The government announced a package of technical tax policy proposals on TAM day (18 April 2024). This includes the publication of consultations on the VAT treatment of private hire vehicles (PHVs) and on technical changes to the national insurance contribution (NIC) reliefs for freeports and investment zones. The government also provided an update on its work to tackle non-compliance in the umbrella company market. A consultation will be published later this year on the VAT treatment of charitable donations.  

It had been hoped that the government would provide updates on a number of consultations, including:  

• the taxation of decentralised finance involving the lending and staking of cryptoassets (ICAEW REP 60/23); 
• charities tax compliance (ICAEW REP 70/23); and
• the taxation of employee ownership trusts and employee benefit trusts (ICAEW REP 96/23). 

The government has not indicated if or when it will publish its responses to these consultations.  

There was also no further information about the proposed payrolling of benefits, moving the high income child benefit charge to a household basis, or the withdrawal of the furnished holiday letting regime. 

VAT treatment of private hire vehicles (PHVs) 

The government recognises that recent High Court judgements involving Uber may have undue adverse effects on the PHV sector and its passengers. Therefore, the government is seeking views on the potential impacts of those decisions, and any interventions it could make to safeguard the interests of PHV operators, drivers and passengers.  

The government is consulting on possible amendments to either transport or VAT legislation in order to avoid VAT at the standard rate being charged on all PHV fares. The change proposed to the VAT legislation would allow PHV operators to account for VAT as though they were agents for tax purposes, but act as principal for services to passengers.  

Alternatively, the government is considering a number of options for mitigating the impact of the High Court decisions. These include changing the VAT treatment of PHV services, introducing a new margin scheme, specifically for the PHV sector, or legislating to zero-rate demand responsive transport services for VAT purposes. 

The closing date for comments is 8 August 2024.  If you have comments on the proposals that could contribute to a response from ICAEW, please contact Ed Saltmarsh. 

Further information: 

• Consultation: VAT treatment of private hire vehicles
• TAXline article: A lightning bolt for the VAT Tour Operators Margin Scheme

Tackling non-compliance in the umbrella company market 

In June 2023, the Government consulted on options to reduce tax non-compliance in the umbrella company market. ICAEW responded to that consultation in ICAEW REP 81/23. 

The government remains concerned about the scale of non-compliance, and the detrimental impact this has on workers, taxpayers and the labour market. It will publish a response to the consultation in due course.  

HMRC will publish new guidance later this year to support workers and businesses that use umbrella companies. This will include an online tool to help umbrella company workers check whether the correct deductions are being made from their pay. 

The government is considering introducing a statutory due diligence regime for businesses that use umbrella companies. The purpose of this is to remove so-called bad actors from labour supply chains. The government will work with the recruitment industry and others on the detail of the regime, and ensure it understands the impacts this could have on reducing non-compliance. 

Update

On 22 April, HMRC warned employment and recruitment agencies to make sure they do not use non-compliant umbrella companies. HMRC has provided a list of signs that an umbrella company may be operating a tax avoidance scheme. The agency should check the details it is given by the umbrella company and consider taking independent advice if it is unsure if the umbrella company is compliant with the tax rules. HMRC’s guidance sets out the potential risks for the agency; the steps the agency can take to protect itself and the workers; and how to make a report to HMRC. 

VAT treatment of charitable donations 

The government intends to introduce a targeted VAT relief for low-value goods that are donated by businesses to charities and are then given to people in need. The intention is that the measure will encourage charitable giving. A 12-week consultation will be launched before 23 July 2024.  

NIC reliefs for freeports and investment zones  

An employer operating in a freeport or investment zone special tax site does not have to pay secondary class 1 NIC on up to £25,000 of the eligible employee’s earnings per year for up to 36 months. One of the eligibility conditions is that the employee is expected to spend 60% of their working time in the freeport or investment zone special tax site. However, exceptions apply where working patterns have been adjusted to accommodate the protected characteristics of pregnancy, maternity and disability. 

The government is consulting on draft regulations that introduce a new reporting requirement for employers who claim the relief. With effect from 6 April 2025, the employer must report an ‘employee workplace postcode’ as part of their full payment submission (FPS) return in respect of an employee they claim relief for. The employee workplace postcode is the postcode in the special tax site where the eligible employee is expected to spend at least 60% of their working time. 

Special rules apply where an employee has an adjustment for the protected characteristics set out above and does not need to meet the 60% working time requirement. In this case, the employer must provide the postcode for the address at which the employee works in the special tax site, or would work except for the adjustment that has been made. 

The closing date for comments is 15 May 2024.  If you have comments on the proposals that could contribute to a response from ICAEW, please contact Peter Bickley. 

Further information: 

• Consultation document 
• Draft regulations 
• ICAEW TAXguide 03/24: Payroll rates, allowances and thresholds in 2024/25