The Chancellor has announced a range of new anti-tax avoidance, anti-tax evasion and tax compliance measures as part of the 2021 Budget. These include the following measures which are expected to be legislated for in the Finance Bill 2021, which is due to be published on the 11th of March:
- Tackling promoters of tax avoidance. A package of new measures to strengthen existing anti-tax avoidance regimes, which will be designed to target promoters and enablers of tax avoidance schemes. These measures are expected to allow HMRC to issue and publish penalties for those who enable schemes sooner, to allow HMRC to stop promoters from marketing schemes earlier, and to amend the general anti-abuse rule (the "GAAR") so that it can be applied more directly and clearly to partnerships which enter into abusive arrangements, at the partnership level. A summary of the responses to HMRC's July 2020 consultation on this topic can be found here.
- Financial institution notices ("FINs"). A new form of notice called a FIN, which will enable HMRC to obtain information from financial institutions (including banks and fund managers) about their clients. This announcement is not unexpected but comes in the face of searing criticism by the House of Lords of the draft legislation published by the government in July 2020. You can read our recent briefing on the incoming FIN rules here.
- OECD reporting rules for digital platforms. The implementation of OECD rules which will require digital platforms to send information about the income generated by sellers which use their platform to both HMRC and the sellers themselves. The government will consult on how to implement these rules, which are intended to enable HMRC to ensure these sellers are paying the correct amount of UK tax. HMRC will also exchange this information with other tax authorities, enhancing international cooperation in the prevention of tax evasion. Further details can be found here.
- Penalties for late payment and interest harmonisation. A new regime which will both harmonise interest and reform the calculation of penalties for the late payment and submission of VAT and self-assessed income tax. The regime is expected to come into effect from 1 April 2022 for VAT taxpayers, from 6 April 2023 for income tax self-assessment ("ITSA") taxpayers with income over £10,000 per year, and from 6 April 2024 for all other ITSA taxpayers. In broad terms, it introduces a tax geared penalty of 4% (plus a further 4% p.a.) for late paid tax, subject to a points-based entry test to take out occasional no-compliance. Further details can be found here.
- Follower notices and penalties. A reduction in the penalties that may be charged to people receiving "follower notices" from 50% to 30% of the tax under dispute, with a further penalty of 20% being chargeable if the Tax Tribunal determines that the recipient's continued litigation against HMRC is unreasonable. Follower notices are legal requests by HMRC to a taxpayer which has used a defeated tax avoidance scheme to remove the tax advantage they have claimed. They can only be issued if the scheme has been defeated in litigation and they carry a penalty if the recipient does not take action in response to the notice.
- R&D relief cap for SMEs. A cap on the R&D tax credit a small or small-medium sized entity can receive in any one year of £20,000 plus three times the relevant company's total PAYE and NICs liability. HMRC believes this relief has become a target for tax fraud and abuse, which this cap is intended to deter. Further details can be found here.
The Chancellor has also announced the implementation of OECD mandatory disclosure rules in relation to certain cross-border tax arrangements. The implementation of these rules is not expected to be legislated for in the Finance Bill 2021 but will be consulted on over the course of 2021. This follows the December 2020 announcement that the government would be limiting its implementation of DAC 6.
Our comprehensive summary of, and reaction to, the other measures announced in the Budget 2021 can be found here.