Tuesday (23rd March), in case you missed it, was “Tax Day,” when the Treasury made many announcements about their plans for the future shape of the UK tax regime, building on the ten-year tax administration strategy they published last year.
From our point of view as tax specialists, we weren’t sure what to expect but the jungle drums were suggesting some quite substantial changes/reforms would be outlined. In the event, the jungle drums were playing the wrong tune, but nevertheless there were some high notes in a few key areas.
So although there was nothing major about capital gains tax, nor anything published about how the government intends to change taxes for the self-employed (yet), there were still some straws in the wind alongside numerous calls for evidence and further consultations. This is what we have gleaned…
Tax administration, SMEs and MTD
Make no mistake, Making Tax Digital (MTD), which we, at M&S, have been banging on about for years (mainly because of our concerns about it), will be extended sooner or later. First introduced in April 2019 for VAT for businesses with a taxable turnover above the VAT threshold, we know that from April 2022, legislation will extend MTD to smaller VAT registered businesses and that later this year, the government intends to legislate for the extension of MTD to Income Tax Self-Assessment.
Underpinning all this is the unavoidable fact that the biggest gap in tax receipts comes from small businesses, as shown in the graph below (from the Daily Telegraph, based on HMRC figures). What the government wants to do, obviously, is pay for the enormous hike in public spending as a result of the pandemic. Given that small businesses are the largest contributor to the tax gap, they are an obvious place to start. The publication of the government’s call for evidence on the “timely payment” of tax document focuses mainly on income tax (but also looks at corporation tax for those companies not already paying tax on a quarterly basis) and the emphasis is now on in-year tax payments being made on the basis of an as up-to-date a view of the taxpayer’s position as possible. Although the Treasury does acknowledge the challenges involved, especially around admin and cash flow for small businesses, you can see how the MTD has its attractions for the government if it “helps” small businesses pay tax more often and more accurately.
One key area, much reported, where we are seeing some clarity, is around inheritance tax. Specifically, from 2022, the intention is that over 90% of non-taxpaying estates will not have to complete inheritance tax forms for deaths when probate or confirmation is required. This should be seen as part of the government’s more general call for evidence on the tax administration framework and its focus on simplifying registration rules and making greater use of data and digitalisation.
We know this is important for a good number of M&S clients, so if you do have any concerns after reading this, please get in touch. Although we’ll need to wait until later this year for the final report, we do know that the criteria for determining whether a holiday let is assessed to business rates is going to change. In the future, you’ll have to account for the actual number of days your property was rented. This is being introduced to ensure that owners of properties cannot reduce their tax liability by declaring a property available for let but actually making make little or no attempt to market it as such.
Other property-related announcements include the government confirming a consultation on a new tax on the largest residential property developers. With Grenfell still very much in the construction industry’s mind, the proceeds of this will help to pay for the costs of sorting out existing cladding problems. Finally in property, the government announced a technical amendment to the structures and buildings allowance rules.
First, the good news: following a consultation in 2020, the government has decided not to make any changes to the VAT grouping rules. In addition, they have set out some ways to simplify the existing processes for partial exemption and the capital goods scheme.
However, later in the year, the government is likely to introduce new rules to deal with the apportionment of consideration where items with different VAT liabilities are supplied together for a single price.
Finally under VAT, there will be a call for evidence soon on the exemption from VAT for land and property. The intention here is to explore options for making exemption simpler and clearer. As with much of the government’s intentions, the idea of making everything “simpler and clearer” is to be applauded, even if we know that their track record in this respect is mixed, at best…
Trusts and taxation
In 2018, the government ran a consultation on the taxation of trust, but the responses did not seem to suggest there is much desire for a comprehensive reform of trust tax. Although the government says it will keep this under review, it is likely (famous last words) that the taxation of trusts will be left more or less unchanged in the meantime.
Social investment tax relief, which was last reviewed in 2019 and was due to be withdrawn in 2021, was given a two-year reprieve at the last Budget, but it now looks as if the relief will be finally withdrawn in 2023. However, before anyone gets too annoyed, the government has also committed to monitoring the market to consider how alternative support might subsequently be provided for enterprises originally intended to benefit from this relief.
Offshore/international tax: the ‘No Safe Havens’ strategy outlines how HMRC will ensure taxpayers comply with their UK tax obligations regardless of where in the world their income or gains are made. This strategy is intended to assist taxpayers to comply with their tax obligations and respond appropriately and, as part of its implementation, the government is publishing two discussion documents to guide future policy measures, viz,
Finally, the government is going to make technical amendments to pensions tax legislation and will also review the appropriate tax framework for superfunds (consolidation vehicles for defined benefit pension schemes).
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To sum up: we were not quite clear what to expect from Tax Day, despite the speculation that had been mounting that some significant reforms would be announced. In the event, many of the announcements were very technical in nature or intended to start discussions. Despite the pre-Tax Day hype, the Treasury published nothing about significant changes to CGT or the taxation of self-employed individuals. However, that does not disguise the direction of travel. We would be surprised if Rishi Sunak does not revisit these later in the year so the message is – if you do work for yourself, keep an eye on the business pages and come and speak to us. And if you are self-employed, we are sorry, but we don’t believe there is any chance that you are not going to see some significant changes to the ways in which you interact with the Treasury (i.e. MTD) and the amounts of tax and NI you have to pay.
Vivian Linstrom M&S Accountancy & Taxation