Budget 2021 - Other Taxes
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There were some other significant measures announced in Budget 2021. These include reforms to business rates, measures to tackle furlough fraud and the extension of the Stamp Duty holiday.
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Business rates relief extended
Businesses in the retail, leisure and hospitality sectors in England and Wales will continue to receive relief from business rates - at an effective rate of 75% across 2021/22 as a whole – and airports will get an effective discount of 50% across the year.
Retail, leisure and hospitality
Qualifying businesses in the retail, leisure and hospitality sectors are already benefiting from 100% relief from business rates, and this relief will be extended from 1 April 2021 to 30 June 2021. Thereafter, qualifying businesses will benefit from a business rates reduction of 66% for the period from 1 July 2021 through to 31 March 2022. However, this relief will be capped at a value of £2m per business for properties that were forced to close due to Covid 19 on 5 January 2021. For qualifying businesses where the properties were not forced to close on 5 January 2021, the relief will be capped at a value of £105,000 per business. Subject to the application of the caps, therefore, this represents a discount of 75% of business rates when measured across the whole financial year to March 2022.
Relief for airports and ground operations from business rates is being renewed for six months from 1 April 2021 through to 30 September 2021. Eligible businesses in England will receive full relief from business rates for this six month period, capped at £4m per claimant. Subject to the application of the cap, therefore, this represents a discount of 50% of business rates when measured across the whole financial year to March 2022.
Reimbursement of business rates relief
Some businesses have declined to take advantage of business rates relief, and have made payments to local authorities (notwithstanding entitlement to relief). The government is to legislate to put beyond doubt that such payments will be deductible for income tax and corporation tax purposes, so that businesses are no worse off than if they had paid an actual business rates liability.
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Changes to Follower Notice penalties
Currently, penalties apply where a taxpayer receives a Follower Notice (FN) in respect of their use of a tax avoidance arrangement and does not take action in respect of the FN – that is, to take corrective action and bring the disputed tax back into charge. Such penalties are currently 50% of the disputed tax.
Following consultation, the government is reducing the FN penalties to 30% of the disputed tax. However, a further 20% penalty will apply if the taxpayer continues with litigation against HMRC and this litigation is deemed by the Tribunal to be unreasonable. Draft legislation sets out the criteria that must be met before a further penalty of 20% can be applied as follows:
- An FN has been issued
- Corrective action has not been taken
- An FN penalty has been issued to the taxpayer under Section 208 FA 2014
- The Tribunal or Court strikes out a taxpayer’s appeal on the grounds it has no reasonable prospect of success, there is an abuse of process, or the Tribunal/Court makes a statement that the taxpayer has acted unreasonably in bringing/conducting the proceedings.
These conditions and the ‘further penalty’ apply to the FN regime only and will apply to FN penalties issued on or after the date of Royal Assent of Finance Bill 2021.
Taxpayers who receive FNs should speak to their Tax Adviser as a matter of urgency, given the potential penalties if they fail to take corrective action within the 90 day deadline. For more information, see here.
HMRC to gather more data for tax investigations
New legislation in the Finance Bill will, when enacted, change HMRC’s existing information powers, to streamline third party information notices issued to financial institutions such as banks.
The introduction of the new ‘Financial Institution Notices’ will enable HMRC to obtain information about taxpayers’ accounts without first needing to obtain the taxpayer’s or the Tribunal’s permission. While this change was prompted by a desire to speed up HMRC’s ability to satisfy information requests by overseas tax authorities, the change will also apply to data requests to UK banks for UK tax issues. The draft legislation will also make other changes, such as empowering HMRC to issue information notices for the purpose of collecting tax debts, and increasing daily default penalties.
The government also trailed forthcoming consultations which will, if legislation is subsequently enacted:
- Require digital platforms to send information about the income of their sellers to both HMRC and the seller. The intention is to help taxpayers in the sharing and gig economy to submit correct tax returns. It will also help HMRC to detect and tackle non-compliance.
- Implement cross-border information-sharing, based on OECD proposals, on Common Reporting Standard (CRS) Avoidance Arrangements and Opaque Offshore Structures, in order to tackle international tax evasion.
- Give HMRC new information powers allowing its investigators to identify developers and suppliers involved in Electronic Sales Suppression (ESS) supply chains, and access developers’ source code. This is part of a package of measures enabling HMRC to tackle tax evasion by businesses using software and hardware to hide or reduce the value of transactions and the corresponding tax liability. The legislation will also make the possession, manufacture, distribution and promotion of ESS software and hardware an offence.
Taxpayers who receive information notices should speak with their Tax Adviser to obtain advice on how to respond, before the 30 day appeal deadline expires. For more information, see here.
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1,256 HMRC staff to combat COVID-19 fraud
The Treasury is investing £100 million in a Taxpayer Protection Taskforce of 1,265 HMRC staff to combat fraud within COVID-19 support packages, including the Coronavirus Job Retention (furlough) Scheme (CJRS) and the Self-Employment Support Scheme (SEISS).
This announcement recognises that HMRC needs more money to tackle fraudsters who took advantage of the rapid roll-out of government support due to the pandemic. We expect this funding will enable HMRC’s Fraud Investigation Service to expand its ongoing investigations considerably over the coming months, using legislation enacted in Finance Act 2020 to claw back money to which claimants are not entitled. We also expect HMRC to impose significant tax-geared penalties for deliberately incorrect claims. HMRC will use the public’s tip offs and other data it holds to identify cases for investigation.
Any business which realises that its CJRS or SEISS claims were incorrect for any reason should seek specialist advice. We would encourage any business or individual concerned about an incorrect claim to consider voluntarily correcting the mistakes before HMRC opens an investigation.
If you would like to assess your risk of having made an error with CJRS claims, please see BDO's CJRS Risk Review Tool.
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Stamp Duty land tax changes
The current SDLT nil rate band of £500,000 for residential property acquisitions in England and Northern Ireland will be extended from 31 March to 30 June 2021, with a reduced nil rate band of £250,000 for acquisitions between 1 July and 30 September, after which it will revert to £125,000.
This will be helpful to the residential market, and will reduce the current pressure on conveyancers who may be finding it difficult to arrange completion of contracts by 31 March. Although there was no announcement of ‘grandfathering’ of contracts exchanged before the relevant time limit but completed after that time limit, the two-step approach should reduce the ‘cliff edge’ effect of a sudden drop in nil rate band from £500,000 to £125,000.
The additional 3% SDLT charge will continue for purchases by companies and for purchases of second properties in England and Northern Ireland by individuals who are not replacing their private residence. A separate additional 2% SDLT charge will apply from 1 April 2021 to non-UK resident purchasers of residential property in England and Northern Ireland, for whom the top rate of SDLT could, therefore, rise to as much as 17%.
New reliefs will be introduced from the 15% rate of SDLT and the Annual Tax on Enveloped Dwellings (ATED) for certain qualifying housing co-operatives. For SDLT, the relief can be claimed for land transactions where the effective date of the transaction is on or after 3 March 2021. For ATED, the relief will apply to chargeable periods beginning on or after 1 April 2020, allowing eligible housing co-operatives who have already paid ATED for that period to claim a refund.
Relief from SDLT will be available on purchases of land and buildings in designated Freeport tax sites In England – see the Freeports article for further details.
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Plastic Packaging Tax
As previously announced, a new Plastic Packaging Tax (PPT) will apply from 1 April 2022. This, will apply to plastic packaging manufactured in, or imported into the UK, that does not contain at least 30% recycled plastic at a rate of £200 per tonne. Plastic packaging is packaging that is predominantly plastic by weight. Finally, imported plastic packaging will be liable to the tax, whether the packaging is unfilled or filled.
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