Autumn Budget 2021: effects on tax disputes

10 November 2021

On 27 October 2021, the Rt Hon Rishi Sunak MP, the Chancellor of the Exchequer, unveiled the contents of the Autumn Budget 2021. This comes after the International Monetary Fund (IMF) published its world economic forecast on 12 October 2021. The IMF expects the British economy to grow 6.8% in 2021 and 5.0% in 2022.1 During 2021, the UK GDP is expected to grow more strongly than that of France (6.3%), the US (6.0%), Italy (5.8%), Spain (5.7%), and Germany (3.1%). In this context, the UK government is in a good position to strengthen the protection of the public revenue whilst tackling the growing inequalities intensified by the pandemic.

The present article focuses on those specific measures that might have an effect on tax disputes.

Promoters of tax avoidance

First, the government said that FB 2022 will include provisions aimed at promoters of tax avoidance arrangements. Under the new legislation, the Revenue will be able to (1) seek freezing orders to prevent promoters from hiding their assets before paying penalties;2 (2) publish details of suspected tax avoidance schemes and those connected to them; (3) impose an additional penalty of up to 100% of the total fee earned by the scheme, to UK entities that facilitate the promotion of tax avoidance by promoters overseas, and (4) file winding-up petitions to the court for companies and partnerships if this is convenient for the public interest and protects the public revenue. It is up to the court to decide whether this is beneficial for the public interest. The new legislation is expected to be published on or around 4 November 2021.

Diverted Profits Tax (DPT) and Mutual Agreement Procedures (MAPs)

A MAP is a mechanism – promoted by the OECD – by which tax authorities seek to reach a solution regarding cross-border taxation of certain transactions. Under s 124 of the Taxation (International and Other Provisions) Act 2010, HMRC has to give effect to solutions reached under a MAP. Nevertheless, it has been uncertain whether DPT is covered. In Glencore Energy Ltd v HMRC [2019] UKFTT 438 (TC), the Revenue argued that this depended on the MAP discussions. In this context, the government announced that it will amend current legislation to enable MAP decisions on DPT to be implemented by the Revenue, terminating uncertainty on the matter.

DPT and its interaction with corporation tax closure notices

On 27 September 2021, the First-tier Tax Tribunal (FTT) issued a decision in the case of Vitol Aviation v HMRC [2021] UKFTT 353 (TC), which referred to an international corporate group. Before the case, HMRC had opened an enquiry into their returns and issued DPT charging notices. The companies applied to the tribunal for the issue of closure notices, which the Revenue claimed would mean deciding the tax that should apply to the transfer pricing adjustment – something beyond the FTT’s jurisdiction. At the end, the tribunal rejected HMRC’s argument.

The government said that it will add a new section 101C to Finance Act 2015, precluding the issue of a final or partial closure notice regarding any matter potentially relevant to the DPT charging notice. It also leaves without effect any future decision such as the one taken in Vitol Aviation. These modifications will apply to DPT review periods that are open on 27 October 2021.

Research & Development reliefs

In 2019, the UK only spent 1.8% of GDP in R&D, i.e. lower than France (2.2%), the US (3.1%) and Germany (3.2%). The OECD average is 2.5%.3 R&D is defined in s 1138 of the Corporation Tax Act 2010 as “activities that fall to be treated as research and development in accordance with generally accepted accounting practice”. After consultation, the Rt Hon Rishi Sunak MP announced the extension of the scope of qualifying expenditure for R&D tax credits. This would include data and cloud computing. However, it has also revealed plans to tackle abuse of R&D tax reliefs, which could produce a higher number of related tax disputes, where the judiciary would decide whether or not a tax relief should be granted.

Uncertain tax treatment

In order to “reduce the legal interpretation portion of the tax gap”, Finance Bill 2022 (FB 2022) will establish a requirement for big companies and partnerships (those with a turnover of more than £200m per year or balance sheet total over £2bn) to notify the Revenue when they take an uncertain tax position in their returns for corporation tax, income tax or VAT. Although only two notification triggers have been included, the government is expected to add a third one, which will be particularly important for tax litigation, i.e. where there is a substantial possibility that the judiciary would find the position of the taxpayer to be wrong in material aspects.

Discovery assessments

On 30 June 2021, the Upper Tribunal (UT) decided in HMRC v Jason Wilkes [2021] UKUT 150 (TCC) that HMRC could not issue discovery assessments in relation to a higher income child benefit charge (HICBC). Taxpayers welcomed this ruling, especially after the Supreme Court’s dismissal of the concept of “staleness” in HMRC v Tooth [2021] UKSC 17. The UT chose not to apply a purposive statutory interpretation, as the outcome did not constitute absurdity or injustice.

The government has announced that FB 2022 will include provisions that would reverse the effect of the Wilkes decision. These provisions will extend the scope of the tax charges able to be recovered utilising discovery assessments, including HICBC, charges relating to gift aid and certain pension provisions. The legislation will have retrospective effect because, according to the Revenue, this was the position widely accepted before Wilkes.

Additional points to note

The budget also announced a number of changes which, although of more general interest, might be potential areas of dispute in the future.

  • Basis period reform – Basis periods will be abolished effective in 2024/25. Instead unincorporated businesses (and non-resident companies charged income tax) will be taxed on their profits arising in the tax year irrespective of the businesses accounting period end date. This will end double taxation of profits early in a business’s life and the need for overlap relief on cessation. 
  • CGT Payment Extension on disposals of UK land and property – The deadline for Capital Gains Tax payment on property disposal will be extended from 30 days after completion to 60 days.
  • Dividend income tax increase – As previously announced, the dividend income tax rates will be increased by 1.25% from 6 April 2022, to 8.25%/33.75%/39.35% for a basic/higher/additional rate taxpayer. The dividend rate for trusts is also increasing to 39.35%.
  • Residential property developer tax – A new tax is to be introduced on residential property developers. The tax will be 4% of profits over £25m. The government has introduced the tax to help fund the removal of cladding from high-rise buildings around the country. It will be interesting to see whether the surcharge continues once the cladding scandal is resolved.


[1] International Monetary Fund, “World Economic Outlook Database”, accessed 28 October 2021.

[2] The new legislation would apply to all relevant anti-avoidance penalties under the Promoters of Tax Avoidance Scheme (POTAS).

[3] Organisation for Economic Co-operation and Development, “Gross domestic spending on R&D”, accessed 28 October 2021. 

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