Corporate Tax Newsletter – April 2024

Corporate Criminal Offence

Residential property developer tax

Changes to ERS Reporting

Corporate Criminal Offence

As part of the Criminal Finances Act 2017, the corporate criminal offence (“CCO”) legislation was enacted. The aim of this is to create an environment of corporate monitoring and self-reporting of criminal activity. The Act introduced the concept of a corporate offence of failure to prevent the facilitation of tax evasion. This means that a business can be held criminally liable if it fails to prevent its employees, agents, or any person performing services on its behalf from facilitating tax evasion, whether in the UK or abroad.

In other words, it is not whether your business has evaded tax; it is whether or not someone working with you has evaded tax and your business did not have sufficient procedures in place to identify and prevent it.

It is therefore imperative that businesses undertake a risk assessment and ensure reasonable prevention procedures are in place. 

The 6 key principles to consider for prevention procedures for CCO are as follows:

1. Risk assessment – a business should assess the nature and extent of its exposure to the risk of an associated person engaging, during the course of business, in activity that constitutes the facilitation of tax evasion. Ultimately, a business needs to sit at the desk of their employees, agents and those who provide services for them or on their behalf and ask whether they have a motive, the opportunity, and the means to criminally facilitate tax evasion offences, and, if so, how this risk might be managed.
2. Proportionality of risk-based prevention procedures – businesses are expected to implement reasonable prevention procedures. These should be designed to mitigate the identified risks and outline the business’s position on involvement in the criminal facilitation of tax evasion. Businesses should also have a plan of how to implement and review measures to ensure that persons associated with it are not criminally facilitating tax evasion.
3. Top level commitment – top level management should communicate and endorse the business’s stance on preventing the criminal facilitation of tax evasion and be involved in the development and review of preventative procedures. This can be in the way of delegation of responsibility to a committee, and overseeing the work being carried out and endorsing the measures documented.
4. Due Diligence – is a vital part of a business’s prevention programme that ensures they know who their associated persons are, and the organisation is aware of any risks that might facilitate tax evasion. It may be appropriate, especially for larger organisations, to have differing due diligence procedures for different parts of its business reflecting the varying levels of risk across all its activities.
5. Communication and training – businesses should encourage the involvement of senior management in the creation and implementation of preventative procedures. The approach should be twofold including communication and endorsement of the business’s stance on preventing the criminal facilitation of tax evasion and the involvement in the development and review of preventative procedures.
6. Monitor & review – businesses should monitor and review procedures to evaluate the extent to which internal controls are operating as intended. Businesses may wish to carry out their one monitor review or engage an external party to conduct a review.

The consequences of not having reasonable procedures in place means the business has no defence should HMRC argue the business has facilitated tax evasion.  If found guilty, businesses can face unlimited fines and potentially significant reputational damage. In addition to financial penalties, there may be other consequences such as disqualification of directors or exclusion from public procurement processes. 

We are seeing more questions around this legislation being asked during due diligence processes and tender applications and, as each business has its own set of unique circumstances, the work required to satisfy this legislation can be quite complex. Our team would be happy to have an initial discussion in terms of next steps to ensure your business is compliant with the rules and any exposure is minimised.

Residential property developer tax

For accounting periods ending on or after 1 April 2022, companies that are residential property developers are subject to a residential property developer tax (“RPDT”). This is currently set at 4% of residential property developer profits for an accounting period that exceed the annual allowance of £25,000,000. This allowance is shared between the group members and can be allocated using an allowance allocation statement.

The residential property definition for RDPT includes:

1. a building or part of a building that is designed or adapted, or is in the process of being constructed or adapted, for use as a dwelling
2. land that is or forms part of the garden or grounds of a building or part within paragraph (a) (including any building or structure on such land)
3. an interest in or right over land that subsists for the benefit of a building or part within paragraph (a) or of land within paragraph (b), or
4. land in respect of which planning permission is being sought or has been granted so that it, or a building or part of a building on, interest in or right over it, will fall within any of paragraphs (a) to (c).

There are also some specific exclusions (e.g., temporary sheltered accommodation, student accommodation) and would need to be considered in each case.

If a UK company has land in the UK and has the purpose of the development of residential property – it will be subject to RDPT. The following activities are included as the development of residential property include:

• Dealing in residential property
• Design of residential property
• Seeking planning permission
• Constructing or adapting the residential property
• Marketing and / or management of residential property
• Any activities ancillary to any of these activities

A non-profit housing company is not classed as a residential property developer, however, it needs to be one of the following:

• A non-profit registered provider of social housing
• A registered social landlord under Part 1 of the House Act 1996 (registered social landlords in Wales)
• A registered social landlord under Part of the House (Scotland) Act 2010
• A registered house association under Chapter 2, Part 2 of the Housing (Northern Ireland) Order 1992
• A wholly owned subsidiary of one of the above

There are special rules for joint ventures, and these would need to be considered in addition to the above.

Changes to ERS Reporting

HMRC has recently announced an important change to the reporting requirements for the Enterprise Management Incentives (EMI) Scheme which will come into effect from 6 April 2024.

In an effort to simplify the process, HMRC now require EMI options granted on or after 6 April 2024, to be reported by 6 July following the end of the year in which the grant was made. For example, if options were granted on 1 May 2024, the grant would have to be reported by 6 July 2025.

The original deadline which requires options to be reported within 92 days of the grant will still apply to options granted before 6 April 2024.

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Last Updated on 5 April 2024