Finance Bill 2020-21
Despite recent events, on 21 July 2020, the government held to the usual legislative cycle for taxes and published some draft legislation for Finance Bill 2020/21. However, it is quite possible that recent events have influenced a number of tax reform proposals, calls for evidence and consultations that have also been published. A summary of the current key proposals is shown below, but it seems likely that the Finance Bill will expand considerably before it becomes law in 2021.
Draft legislation and consultations
At Budget 2020 the government proposed a major reform of business rates. It has now launched a formal call for evidence that seeks to improve the effectiveness of the current business rate system in two stages: addressing current reliefs and business rate multiplier in stage one, and revaluations and plant and machinery investment in stage two. Looking further ahead, the document also seeks views on possible replacement taxes, considering alternative taxes such as a capital values tax paid by the property owner or an online sales tax (in addition to VAT).
While the prospect of an end to business rates will appeal to many businesses, it seems unlikely that they will be abolished in the near future. However, if the widespread reliefs available to support businesses through the Coronavirus pandemic are continued, it is possible that business rates will have a much smaller impact on many businesses going forward.
Modernising the UK’s tax system
The Government has published a report setting out a 10 year vision for improvements to the UK tax system. The document restates HMRC’s goal of building a tax system run on real-time information allowing taxpayers to pay tax on a timelier basis. It also aims to help taxpayers get their tax right first time, reduce mistakes, and have a better experience of the tax system.
The impact of recent developments is clear, as the government’s proposals include a move to paperless communications to produce a tax system with ‘greater resilience and responsiveness in times of crisis’. The report envisages that improvements must be made in three key areas to deliver its vision:
- Policy - Extending ‘Making Tax Digital’ (MTD) to all relevant taxpayers (see below)
- Systems - updating the timing and frequency for the payment of different taxes (effectively pay as you go for all taxpayers, not just employees under PAYE)
- Tax law and practice - reform of the tax administration framework to make it simpler for all to use.
Read the report “Building a trusted, modern tax administration system”.
Proposals to extend Making Tax Digital
As part of its intention to create ‘a tax system fit for the challenges and opportunities of the 21st century’, the government has announced that Making Tax Digital (MTD) will be extended as follows:
- From April 2021, HMRC intends to open its MTD pilot service to businesses and landlords to enable them to test the full service before they are required to join.
- From April 2022, MTD will apply to all VAT-registered business for their VAT obligations.
- From April 2023, businesses and landlords liable for Income Tax, with business income over £10,000 per annum, will need to keep digital records and use software to update HMRC quarterly through MTD. The long lead-in time is intended to allow businesses, landlords and agents time to plan, and to enable software providers to bring a range of new products to market, including free software for businesses with the simplest tax affairs.
The government will consult later this year on the design of MTD for Corporation Tax.
Although the government highlights the benefits to taxpayers of MTD and other reforms, including ease of payment and reduced administration, it will also be hoping that the extension of MTD helps to reduce the loss of revenue through errors (estimated to be £8.5 billion in 2018/19) and strengthen compliance.
Review of capital gains tax
On 14 July 2020, the government announced a review of capital gains tax (CGT) by the Office of Tax Simplification (OTS). The terms of the review are more wide-ranging than is normally the case for OTS reviews and cover the rates of CGT as well as the many reliefs that can be claimed. The accompanying call for evidence is in two stages, with comments on the principles of CGT required by 10 August 2020 and feedback on the practical operation of CGT by 12 October 2020.
Draft legislation and consultations
The 2018 changes to the way payments in lieu of notice are taxed introduced the concept of the Post Employment Notice Pay (‘PENP’) rules and calculation to establish the tax liability where the individual has not worked the entirety of their notice period. These can be complex and will be adjusted from 6 April 2021 to remove some unintended results. For example, non-UK resident individuals will become chargeable to income tax on PENP to the extent that they would have worked in the UK during their notice period. Read more on termination payments.
Draft legislation has been published to adapt the UK tax rules to allow pension providers to offer European style ‘collective money purchase’ schemes to UK savers. The government has also issued a consultation on ways to change the current pension tax relief rules so that low earners taking part in ‘net pay’ pension arrangements through their employer are not put at a financial disadvantage compared to low earnings in ‘relief at source’ pension arrangements.
Enterprise Management Incentives
The current EMI rules contain strict conditions about the time spent working in the business (usually 25 hours per week). Draft legislation has now been published to amend these for the period 19 March 2020 to 5 April 2021 so that employees are not disqualified from relief as a result of taking leave, being furloughed or working reduced hours because of the Coronavirus disease.
As promised at the March 2020 Budget, the government has published a consultation on the types of R&D costs that should qualify for the R&D credit schemes, for example costs relating to data and cloud computing.
Following a consultation launched in early 2019, from 1 April 2021 HMRC will levy a 2% SDLT surcharge on acquisitions of residential property in England and Northern Ireland by non-UK resident purchasers. From 1 April 2020, a new relief is introduced from Annual Tax on Enveloped Dwellings for housing co-operatives, they will also get relief from the 15% rate of Stamp Duty Land Tax for transactions on or after Autumn Budget Day 2020. The government has also issued a call for evidence on ways to modernise stamp duty (on transactions in unquoted company shares by document) and stamp duty reserve tax (on paperless share transactions).
Corporate interest restriction – REITS
The UK property businesses of non-resident companies now fall within the corporation tax regime, so a technical amendment to the legislation will be made to clarify that non-resident subsidiaries of Real Estate Investment Trusts do fall within the corporate interest restriction rules.
Changing HMRC’s information powers
HMRC published the outcome of a 2018 consultation on changing its civil information powers in Schedule 36 FA 2008. Alongside this, draft legislation amending Schedule 36 was published which would give HMRC’s powers to obtain data from third party financial institutions without needing permission from the First-tier Tribunal as is required at present. The draft legislation seeks to introduce a new Financial Institution Notice (FIN) that will be used to require financial institutions to provide information to HMRC about a specific taxpayer to help it check the tax position of a taxpayer and used for debt collection purposes.
The draft legislation also contains a number of other provisions including the power to prevent anyone in receipt of a third party notice telling the taxpayer about the existence of the notice, with fines for non-compliance.
Tackling the hidden economy - licences
Draft legislation was published which will introduce a concept of ‘conditionality’. This means that when some types of businesses in England and Wales seek to renew a licence to trade, they will only obtain the licence if they are able to meet the condition of demonstrating that they are registered for tax. This will apply to taxi and personal hire vehicle drivers and businesses and scrap metal dealers and mobile collectors.
Tax avoidance promoters
The Government has published more draft legislation to enable HMRC to sanction advisers for promoting or enabling certain forms of tax avoidance. There is a wide range of existing laws in this area, and the proposals include changing the law on Promoters of Tax Avoidance Schemes (POTAS), Disclosure of Tax Avoidance Schemes (DOTAS and DASVOIT), General Anti-Abuse Rule (GAAR) and the Enablers of Tax Avoidance Schemes rules. It is also consulting on strengthening the law in these areas.
Economic crime levy
As proposed in the March 2020 Budget, the government has issued a consultation document on the creation of a new levy on businesses that fall within the anti-money laundering (AML) regulated sector. The levy is intended to raise £100m a year for the government to spend on tackling economic crimes, and the consultation seeks views on how the levy should be calculated, collected and spent.
Disguised remuneration arrangements
Although the government has already introduced legislation to tackle the use of disguised remuneration arrangements (read about the loan charge) it is still concerned that they continue to be marketed, so has issued a further call for evidence seeking views on where the government can take further action.
Zero emission vans
The government has confirmed that from April 2021, there will be no benefit in kind charge for employees using an employer-provided van that makes no CO2 emissions.