March 23rd, 2021 / Insight posted in Articles

Tax Day 2021

23 March 2021 marked the UK’s first Tax Day, as the government published consultation documents, calls for evidence, and other documents relating to the future shape of the UK tax regime. We were not quite clear in advance what to expect from Tax Day, and speculation had been mounting that some significant reforms would be announced.

As it happened, many of the announcements were either technical in nature or intended to start discussions. Nothing was published, for example, regarding significant changes to capital gains tax or the taxation of self-employed individuals. The Chancellor may of course pick up these topics later in the year so, for now, we have set out here our summary of the key things we have learned.

Tax administration

The government published its ten-year tax administration strategy last year, with the aim of delivering “the flexible, resilient and responsive tax system the UK will need in the years ahead”. A key element of this strategy is the government’s Making Tax Digital programme and – against the wishes of some businesses and advisers – no changes were announced as far as this programme is concerned.

The government has moved forward its “real-time” agenda with the publication of a call for evidence on the “timely payment” of tax. The document focuses most significantly on income tax (as this is where the greatest differences can currently arise between the time profits arise and the time the associated tax is payable) but also looks at corporation tax for those companies not already paying tax on a quarterly basis. The government will now be looking in detail at the possibility of in-year tax payments being made on the basis of an as up-to-date a view of the taxpayer’s position as possible. The document does identify some clear challenges in moving towards such a system, including the administrative and cash flow implications.

The government also published a more general call for evidence on the tax administration framework, considering such issues as simplifying registration rules and making greater use of data and digitalisation.

Several changes will be made to reduce administrative burdens for those dealing with inheritance tax. Specifically, from 2022, the intention is that over 90% of non-tax paying estates will no longer have to complete inheritance tax forms for deaths when probate or confirmation is required.

Tackling non-compliance

Several documents concerned measures designed to drive down “non-compliance”, including:

  • A consultation document on new measures to clamp down on promoters of tax avoidance, including the ability to secure or freeze a promotor’s assets to protect HMRC’s penalty position, penalties for UK entities that support offshore promoters, and HMRC’s ability to request that companies promoting avoidance schemes are closed down, with their directors being disqualified.
  • A discussion document seeking views on ways to help taxpayers get their offshore tax right, for example, by HMRC making better use of the data they receive, and supporting and promoting tax compliance more generally.
  • A discussion document on how HMRC might more successfully prevent and collect international tax debt.

Property

The government published an interim report as part of its fundamental review of business rates, which began last year. This interim report summarises the responses to last year’s call for evidence and highlights policy decisions announced at Budget 2021. However, we will need to wait until later in the year for the final report.

In the meantime, it was announced that the criteria for determining whether a holiday let is assessed to business rates will be changed. This is to ensure that owners of properties cannot reduce their tax liability by declaring that a property is available for let while making little attempt to do so.

In other property-related announcements, the government confirmed that they would consult on a new tax on the largest residential property developers, the proceeds of which will help to pay for the costs of cladding remediation. They also announced a technical amendment to the structures and buildings allowance rules.

Large businesses

The government announced at Budget 2020 that large businesses would have a requirement to notify HMRC where they have adopted an “uncertain tax treatment”. Concerns were raised last year that the proposed rules were too subjective and, in response, the government took the opportunity to delay the proposal and re-think some of the detail.

The government has now published a further consultation document on this policy, proposing a series of more objective triggers to determine when a business needs to make a notification to HMRC. These will include situations where the treatment adopted results from an interpretation that is different from HMRC’s known position or where it differs from standard industry practice.

The government is also looking to increase requirements for businesses to maintain transfer pricing documentation. Currently, this is governed by generic record-keeping requirements, which are less onerous and less specific than in many other jurisdictions.

The government is now specifically considering whether businesses subject to country-by-country reporting rules should be required to maintain “master” and “local” files, and whether all businesses within the scope of transfer pricing rules should be required to report to HMRC specific information on cross-border transactions with connected parties. The second of these proposals may ultimately be more onerous for a larger number of businesses.

VAT

There were technical announcements regarding VAT, including the following:

  • Following a consultation process last year, the government has decided not to make any changes to the VAT grouping rules.
  • The government has set out some ways in which it will simplify the existing processes for partial exemption and the capital goods scheme, as a possible “first step” towards addressing concerns about these regimes.
  • Later in the year, the government expects to introduce new rules to deal with the apportionment of consideration where items with different VAT liabilities are supplied together for a single price.
  • A call for evidence will shortly be published on the exemption from VAT for land and property, with the aim of exploring options for making the exemption simpler and clearer.

Other matters

The government ran a consultation on the taxation of trusts in 2018. The responses did not apparently indicate a desire for a comprehensive reform of trust tax. While the government says it will keep the issues raised under review, it appears as though the taxation of trusts will largely be left unchanged for the time being.

The government carried out a review of social investment tax relief back in 2019, which was due to be withdrawn in 2021. At Budget 2021, this relief was given a two-year reprieve and it does now appear clear that the relief will be finally withdrawn in 2023. However, the government has committed to monitoring the market and assessing how it might provide alternative support for the enterprises originally intended to benefit from this relief.

Lastly, the government will make some technical amendments to pensions tax legislation and will also review the appropriate tax framework for superfunds (consolidation vehicles for defined benefit pension schemes).