In the March 2020 Budget, the Chancellor Rishi Sunak highlighted the Government’s intention to create ‘a tax system fit for the challenges and opportunities of the 21st century’.
On 23 March 2021, 'Tax Day', the Government published a number of measures supporting the next 10 years' tax administration strategy for the UK.
The aim is for a fully digitalised tax system with individuals and businesses paying tax as they go. This will follow on from VAT Making Tax Digital which has been viewed as a success, producing tax calculations based on real time profits and giving the Government a one off cash tax boost. The aim is to have this in place from April 2023 for self-assessment and there was a call for evidence today on how to make tax more straightforward to pay. A short request and one that will need to cut through years of legislation and case law to achieve a practical solution.
A second theme, was raising the standard in the tax advice market, with a consultation issued on seeking views on the definition of “tax advice” and a proposal to make it compulsory for all tax advisers to have professional indemnity insurance. This could be viewed as passing the policing of tax advisers to insurers but there is currently no easy solution to deter the less professional non-regulated entrants to the tax advice market.
Another focus was the ongoing tackling of tax avoidance promoters through various measures to seek to close the “tax gap”, tackling disguised remuneration and off payroll workers.
To read our initial high-level thoughts from our specialists, use the headings below to navigate through our updates:
Preventing and Collecting International Tax Debt
Construction and Property Incentives
Individual Taxpayers
By Alex Docherty, Tax Partner
Within the documents released by HMRC is a Call for Evidence on the Tax administration framework. As part of the Government’s 10 year strategy there is the move to extend Making Tax Digital to individuals and legislate for this from April 2023. This announcement was originally made back in July 2020 and so from April 2023 Making Tax Digital will be extended to Income Tax Self Assessment for businesses and landlords with income over £10,000. Accordingly, movement towards digital records and quarterly reporting of income and expenses (by one month after the end of each quarterly period) is definitely coming down the track.
A consultation into 'Timely Payment' has also been released, asking individuals who are self-employed/in partnership and Small Companies not within the quarterly instalments regime to feed in their thinking on specific questions around how payments could be made towards income tax and corporation tax on a more timely basis. HMRC now wishes to look at providing options for in-year tax payments to be based on the current tax liability. The challenge of course is for those businesses with fluctuating profits who could find they are overpaying during the tax year, to then be owed a refund, which may have a significant cash flow disadvantage for their business.
Within HMRC’s reviews, is the tackling of non-compliance. HMRC is going to issue further assistance to taxpayers to help them get their offshore tax position correct. The consultation is asking how HMRC can better support clients and work with agents and intermediaries to understand the UK reporting required for offshore assets held by UK taxpayers.
Inheritance Tax
Simplification of Inheritance Tax (IHT) reporting was welcome news for those where there is ultimately no IHT due on the Estate. We have yet to see the detail but HM Treasury advise that from 1 January 2022 over 90% of non-taxpaying estates each year will no longer have to complete inheritance tax forms for deaths when probate or confirmation is required.
Furthermore, the current temporary provision for those dealing with a trust or estate to provide an inheritance tax return without requiring physical signatures from all those involved will be made permanent.
Reporting regulations will also be updated to clarify the requirement for estates to submit an inheritance tax account where the deceased was never domiciled in the UK but owned indirect interests in UK residential property.
Trusts
By Alex Docherty, Tax Partner
HMRC has published a summary of the responses to the Taxation of Trusts consultation which ran from November 2018 to Feb 2019 (demonstrating how long it can take for change to happen!).
HMRC is seeking to achieve the following:
- Transparency (i.e. is there enough disclosure of trusts and beneficial owners)
- Fairness and neutrality (i.e. you should pay the same tax whether or not you use a trust)
- Simplicity (i.e. the rules should not be so complex to discourage the use of trusts where they are appropriate).
There were some suggestions from respondents of radical changes to Trusts but there seems little prospect of significant changes at the present time. Many of the responses are also, naturally, contradictory with different respondents having diametrically opposing views. This makes it difficult to discern how the Government will proceed. It does, however, appear that the Government do not intend to hike tax rates solely for trusts.
It is likely that some technical changes will be considered, e.g.:
- Amending the Inheritance Tax rate for Trusts at the Ten Year Anniversary,
- Reforming vulnerable beneficiaries trusts, which are rarely used because of the complexities involved,
- Reforming and likely strengthening the level of disclosure required by trusts as part of the Trust Registration System or other registers, such as the land register, and
- Changes to Capital Gains Tax reliefs like holdover relief and Private Residence Relief and their interaction with Trusts.
This will also feed off any wider changes made to Capital Gains Tax or Inheritance Tax as part of the wider review of these taxes carried out by the Office of Tax Simplification more recently.
Trusts remain a valuable tool for wealth and succession planning, which can also have certain tax advantages in the right circumstances.
Employment Taxes
By Brian Rudkin, Director and Head of Employer Services
There were a couple of research reports published, nothing new has been confirmed.
The more interesting document was the summary of responses published in relation to the previous “Call for Evidence: tackling disguised remuneration tax avoidance” paper. This paper reinforces the Government’s intention to continue to tackle tax avoidance of employment taxes through disguised remuneration by promotors and employees. A key focus of this paper is the potential increase of abusive arrangements for contractors involving non-compliant umbrella companies in response to the off-payroll worker rule changes from April 2021. The Government is proposing a new Employment Bill in response to this risk. This will include extending the remit of the Employment Agency Standards Inspectorate, who protect the rights of agency workers by ensuring that employment intermediaries treat their workers fairly, to include umbrella companies.
The Government is also consulting on a proposal to create a liability on UK entities that facilitate the structure of any offshore promoter’s tax avoidance arrangements.
Transfer Pricing
By Jonathan Russell, International Tax Manager
HMRC is consulting on the scope of transfer pricing documentation, evidence and filing requirements.
For larger companies, the consultation will consider requiring submission of master and local files to HMRC alongside their corporation tax returns. This is currently common practice across many other jurisdictions, but would be a departure from the UK's current approach of simply requiring that adequate records are maintained in case of enquiry.
For smaller companies within the scope of UK transfer pricing, the consultation will consider requiring that transfer pricing documentation and evidence be available to be produced to HMRC within 30 days of request. In practice, that could require a shift for many companies to maintaining their transfer pricing documentation in a form suitable to be shared with HMRC at short notice.
HMRC is also considering if certain transactions with associated enterprises should be included within the annual tax return. We will be replying to this consultation and would welcome any feedback or concerns from clients.
Preventing and Collecting International Tax Debt
By Erin Davis, Director and Head of International Tax
HMRC is consulting on how to tackle international tax debt, by either reducing its creation or improving its recovery. The Treasury estimates that the level of International tax debt as at January 2021 was £1billion, 5% of the total UK tax debt. International tax debt is defined as an unpaid UK tax where either the tax payer, their assets or both are outside of the UK. Identifying and recovering international tax debt from individuals is particularly complex and is compounded by the high number of cases involved. Developing the collection and use of data appears to be the main focus in the prevention and collection of international tax debts and there has been significant progress in this area in recent years with improvements in tax transparency and the introduction of information exchanges such as the Common Reporting Standard.
One suggestion HMRC is consulting on is whether higher rates of withholding tax should be applied where non-residents have large earnings, such as entertainers and sports professionals. Currently, withholding tax is at the basic rate of 20%, despite many individuals earning levels clearly falling within the higher rates of income tax. There is consideration of then permitting a reduced rate to be applied for, which will be conditional upon good tax compliance and cooperation with HMRC. This would be a significant move away from current processes.
VAT / indirect taxes
By Nigel Roberts, VAT Director and Head of VAT and Duty
HMRC’s initial response to the partial exemption / capital goods scheme consultation conducted in 2019 is very disappointing. Unsurprisingly, HMRC received a lot of criticism over the complexity of the partial exemption rules and the delays and frustrations in trying to agree special methods. The only response seems to be the introduction of a centralised team for approving special methods. Whilst this may help by ensuring applications are seen by HMRC staff who have some understanding of partial exemption, those who deal with the current specialists may be sceptical that this will bring real change. What is really needed is an approach which reflects greater commercial understanding with a change in the legislation that takes smaller exempt sector businesses out of the regime altogether. There’s no sign of this happening anytime soon.
Larger businesses will welcome the confirmation that no further changes are contemplated to the VAT grouping rules, although there is ongoing litigation regarding the inclusion of overseas branches in UK groups. Previously announced changes on valuation rules in the retail sector were also confirmed.
A response to the consultation on the special public sector VAT regimes is promised – this is an area ripe for reform and simplification and may be a simple win for an administration focused on public sector savings. The new consultation on the land and property legislation will be welcome, although changes here will be difficult – the current debate on the treatment of dilapidations and lease termination payments highlights the complexity in this area.
Finally, in non-VAT indirect taxes, another consultation on Air Passenger Duty (APD) is promised and some very focused changes in in Aggregates Duty and Carbon Emissions Taxation were trailed today. APD is devolved in Scotland.
Construction & Property Incentives
By Michael Murray, Partner and Head of Construction & Property
Given there were already a few big announcements in the Budget on 3 March, Tax Day has not brought about many changes on the Capital Allowances front. A technical amendment has been made to allowance statement requirements for Structures and Building Allowance (SBA), to clarify the calculation and the timing of claiming SBAs on second hand buildings.
A new Residential Property Development Tax is proposed to be introduced from 2022 to help pay for cladding remediation, with consultation to follow in the next few months.
Company Tax
By Craig Burnie, Tax Senior Manager
First announced in 2020, the ‘Notification by large businesses of uncertain tax treatment’ consultation has ended and HMRC are publishing results and launching a new consultation. This will broadly apply to businesses within Senior Accounting Officer rules (>£200m turnover). HMRC were initially proposing a de minimis threshold of tax of £1m at stake, but are now proposing £5m.
Entrepreneurial Taxes
By Andrew Holloway, Director and Head of Entrepreneurial Taxes
We had expected some further comment from HMRC on the SEIS/EIS/VCT schemes, but much like Budget Day, no updates have been released. We had expected some movement, particularly in the light of certain representations being made by industry bodies, but importantly these schemes do continue to exist, and offer valuable tax reliefs to investors in start-up and scale-up entities. There were no further comments on employee incentive schemes, with the EMI consultation announced at Budget Day. Responses on the recent consultation on Social Investment Tax Relief have been published, with the sunset clause for the scheme extended by 2 years to 2023.
Should you wish to explore any of the above issues in detail, please contact Susie Walker, our Head of Tax, or your usual Johnston Carmichael contact.
