Autumn Budget 2021 - Other Taxes
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After a lengthy consultation process and much speculation around changes to the regime, the Chancellor announced that business rates will not be abolished but will be reformed and, in his words, made fairer for all those who are obliged to contribute to the £25bn annual tax take.
Jon Hickman - Corporate Tax Partner
Jon has many years of experience dealing with both OMB’s and large international business.
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Business rates reform and new reliefs
Business rates reform
The business rates system is to be modernised by moving to a three-yearly valuation cycle, accompanied by new reporting obligations on ratepayers in respect of the character, occupancy and rental values of properties. The next valuation will take effect in 2023 and will reflect property values in 2021. A consultation will also be carried out to consider the introduction of an online sales tax.
Measures to mitigate impact of Covid 19
The government recognises that many businesses are still recovering from the impact of Covid 19 and, therefore, the multipliers used for the calculation of business rates liabilities will remain frozen until 31 March 2023.
Businesses operating in the retail, hospitality and leisure sectors which are not already fully exempt from business rates through small business rates relief will benefit from a 50% relief from business rates for the year to 31 March 2023, up to a maximum value of £110,000 per business.
Where a business in England is subject to increased business rates liabilities due to a revaluation, a transitional relief is available to mitigate the impact. This is not available to businesses elsewhere in the UK. As the next revaluation has been delayed to 2023, transitional relief will be extended to the year to 31 March 2023. This will limit bill increases to 15% for properties with a rateable value of up to £20,000, and to 25% for properties with a rateable value of up to £100,000.
The government will consult on the continuation of transitional relief from 2023 in the light of the reform of business rates to be introduced alongside the 2023 revaluation.
Reform of business rates, including new reliefs
The government has published the outcome of a consultation into a potential reform of business rates. It has been decided not to proceed with many of the ideas under consideration. However, business rates will move to a system of three-yearly revaluations.
This will initially be implemented in 2023, with a revaluation of properties to reflect their values in 2021. This represents the first revaluation for business rates since 2015.
The intention of the new revaluation cycle is that valuations for business rates purposes will more accurately reflect changes in property values. Additional funding will be provided by government to the Valuation Office to provide resources to facilitate undertaking the revaluations. However, the work of the Valuation Office will be supported by new filing obligations on ratepayers to require notification to the Valuation Office of changes to the occupier and the physical characteristics of properties, and information on rent and leases. These obligations will be phased in from 2023.
From the 2026 valuation, the appeals process for revaluations will also be simplified. The current regime involves a ‘check’, ‘challenge’ and ‘appeal’ approach. The ‘check’ element will be abolished, and a three-month time limit will be introduced for ‘challenges’. The Valuation Office will then be subject to a statutory obligation to resolve challenges before the next valuation takes effect.
The government acknowledges that a potential increase in liabilities for business rates might discourage property improvement which would impact the valuation of the property, such as adding rooms to a hotel or expanding a factory. It is, therefore, proposed to implement an improvement relief providing 100% relief from higher business rates bills for 12 months following eligible improvements. The detail of the proposed relief will be subject to consultation before being introduced from 2023.
To support green investment and decarbonisation, a relief will also be introduced to exempt plant and machinery used for onsite generation and storage of renewable energy such as solar panels and electric vehicle charging points.
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Simplifications to REITs regime
Further to announcements made in the summer, the government has confirmed that it will proceed with a number of simplifications to the Real Estate Investment Trusts (REITs) regime.
The listing requirement will be removed for cases where institutional investors hold at least 70% of the REIT. This could make REITs more attractive to institutional investors, as it would remove the significant cost of maintaining a listed entity.
Tax charges in respect of distributions to shareholders with holdings of 10% or more will be disapplied where they would be entitled to payment of gross distributions, such as UK-resident corporates and registered pension funds.
Certain non-rental profits arising from complying with planning obligations will be disregarded for the purposes of the balance of business tests, and there will be some administrative filing simplifications where group accounts show a prima facie case of the ‘balance of business’ tests being met at a level of at least 80% of income and assets.
Discovery assessments clarification
HMRC issues discovery assessments to recoup taxes not correctly declared via individuals and businesses’ tax returns, subject to meeting certain legislative conditions and time limits. This wide-ranging power gives HMRC more time to assess tax, over and above the one-year enquiry window.
New legislation in the Finance Bill will, when enacted, clarify the legislation’s wording to put beyond doubt HMRC’s ability to issue discovery assessments to recoup:
- The High Income Child Benefit Charge
- Income tax on gift aid donations, where donors make charitable donations but pay too little tax to cover the gift aid
- Some pension charges.
These changes will apply retrospectively, although taxpayers whose appeals are ongoing in this area before 30 June 2021 will not be affected retrospectively. Additionally, new legislation will confirm that individuals liable to these income tax charges must notify HMRC in future, if they don’t automatically receive a notice to file a tax return. For unrepresented taxpayers in particular, this can be a tricky area of tax law to navigate. Despite HMRC’s guidance, understanding when you need to notify HMRC to file a return is not always obvious and straightforward.
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