Corporation tax: new legal recourse regarding withholding tax on corporations

Who is likely to be affected

Businesses who have made common law claims against HMRC in relation to the operation of the former Advance Corporation Tax (LAW) regime.

General description of the measure

This measure provides for a non-exclusive return of interest to claimants who have made common law claims against HMRC in respect of LAW which has been paid and subsequently compensated or refunded.

Political objective

The move introduces a new legal remedy to address the uncertainty that has arisen for both taxpayers and HMRC following a recent Supreme Court ruling.

Context of the measure

This measure was announced in Budget 2018.

On July 25, 2018, the Supreme Court of the United Kingdom delivered its judgment in the case of Prudential Assurance Company Ltd v Commissioners for Her Majesty’s Revenue and Customs [2018] UKSC 39. The case relating to the former LAW regime, which ceased to apply in April 1999, with effect from the entry into force of the notional corporation tax regime.

As part of the ruling in the Prudential case, the Supreme Court overturned the decision of the House of Lords in the earlier case Sempra Metals Ltd v Inland Revenue Commissioners [2007] UKHL 34.

Claims for the return of time value for the period from the payment of LAW compensation or reimbursement were based on the Sempra Metals judgment, which also indicated that this satisfied the requirement of an effective remedy. The Supreme Court in Prudential held that there was no such common law remedy for damages. This creates uncertainty to which the remedy offered by the law responds.

This measure was not subject to consultation since the Supreme Court only rendered its decision on July 25, 2018.

Detailed proposal

Effective date

The measure will come into effect from the date of Royal Assent to the Finance Bill 2018-19.

Current law

At present, there does not appear to be any appropriate legal recourse.

Proposed revisions

Legislation will be introduced in the Finance Bill 2018-19 to introduce a new non-exclusive legal remedy. The remedy effectively provides a return of interest on LAW which has been paid and set off or refunded, plus interest on that sum.

Summary of impacts

Impact on Treasury (£m)

This measure should have no impact on the Treasury.

Economic impact

This measure should not have significant economic impacts.

Impact on individuals, households and families

This measure has no impact on individuals since it only concerns businesses. The measure should not affect the formation, stability or breakdown of the family.

Equalities impacts

We do not anticipate that there will be impacts on groups sharing protected characteristics.

Impact on businesses, including civil society organizations

This measure should only affect companies who have lodged common law claims against HMRC in relation to the LAW regime. There will be negligible impact from one-time familiarization and no ongoing impact. This measure will not affect civil society organizations.

Operational impact (£m) (HMRC or other)

The operational impacts for HMRC in implementing the proposed statutory remedy in this measure are expected to be negligible.

Other impacts

Other impacts were taken into account and none were identified.

Monitoring and evaluation

The measure will be reviewed by contacting the applicants concerned.

Additional tips

If you have any questions about this change, contact Martyn Rounding by phone: 03000 589 303 or email: martyn.rounding@hmrc.gsi.gov.uk.