On 23 March 2021 the government published a series of announcements and consultations on changes to tax law on the first ever Tax Day. The collection of measures is in essence what we were told that we would be getting: measures that do not impact the current Finance Bill or March 2021 Budget costings. The Chancellor hasn't used Tax Day as an opportunity to launch any big juicy tax raising consultations, but has instead focused on measures which look to close the tax gap. None of these measures are particularly earth-shattering at first glance, but as ever, the devil is in the detail.
Tax Day: Key proposed changes
Notification of uncertain tax treatment
Of particular interest to large businesses (those with turnovers exceeding £200m and / or balance sheet totals exceeding £5bn) will be the consultation on notifications of uncertain tax treatment, a measure which was previously announced and consulted on in 2020. If enacted, this will require large businesses to notify HMRC where they have taken a position which is contrary to HMRC's known interpretation of tax law, where the tax at stake is at least £5 million. This is a broad requirement which would also require notifications where HMRC's position is not known in relation to a novel structure or product, or where a business departs from professional advice (where that advice is not privileged). The projected April 2023 increase in corporation tax rate from 19% to 25% will bring tax positions which were previously below the notification threshold into the scope of this measure. This measure is due to take effect from April 2022 and the first draft of the legislation will be published this Summer.
Read HMRC's consultation document.
Reform of tax administration and timely payment of income taxes and corporation tax
At a much earlier stage are proposals to reform the tax administration framework – the legislation which identifies taxpayers and verifies their tax liabilities, provides for the payment of taxes and sets out safeguards for taxpayers. Central to this reform is a proposal that the payment of income tax by those outside of PAYE and payment of corporation tax by small companies that do not currently pay in quarterly instalments is moved closer to real time – this proposal is also being considered under a separate call for evidence. This would be a huge change for the 11.5 million persons paying income tax through self-assessment and 1.5m small companies who pay corporation tax after the end of the accounting period. The key difficulty of moving to a real time payment system would be the impact on cash flow when tax is due for both the current tax year and a former tax year in the same period of time. The government will need to consider transitional arrangements very carefully if it proceeds with this change.
Measures to tackle promoters of aggressive tax avoidance
A consultation on the latest set of measures to tackle promoters of particularly aggressive tax avoidance schemes was published. If enacted, these measures would enable HMRC to use promoter's assets to pay penalties under various anti-tax avoidance regimes, to pursue UK entities that assist offshore promoters for penalties linked to their involvement in the offshore promoting and to close down entities where it has been shown that they are not acting in the public interest. Also proposed are new measures to name and shame promoters.
In addition, a further consultation on raising standards in the tax advice market was published. This consultation proposes that all tax advisors would be required to have professional indemnity insurance. This is unlikely to impact those advisors who are members of professional bodies – such as lawyers and accountants – and consequently already required to have this insurance, but may have a more significant impact on the 21,000 UK tax advisors who are not affiliated with a professional body. For further information, read our briefing on raising standards in the tax advice market.
Interesting odds and ends
A handful of interesting extra measures were announced, and there were also confirmations that HMRC will not take further action in some areas:
- A consultation into the taxation of securitisation vehicles has been launched, including a possible extension of the UK regime to retained securitisation and an expansion of the types of assets which can be securitised.
- There is a new consultation on the introduction of a requirement for businesses to retain specific documentation to support their transfer pricing position.
- The government has confirmed that no changes to VAT grouping rules will be made. This ends several years of consultation on changes to VAT grouping rules following the Larentia + Minerva CJEU judgment in 2015.
- No further changes to disguised remuneration rules will be made at this point - the government had been considering introducing measures which would apply to entities in the contingent labour supply chain.
Still to come...
We were expecting to see the next stage of HMRC's consultation on reform of stamp duty and SDRT, which was initially consulted on during the latter half of 2020. This is a potentially far reaching wholesale reform of stamp taxes, so it is perhaps unsurprising that the government has chosen to take extra time to consider its next steps in this area. We also wondered whether the government might choose to consult on changes to capital gains tax following the OTS review in this area – for example, the OTS had suggested a reduction to the amount of the capital gains tax annual exempt amount, and even the potential alignment of income tax and capital gains tax rates. However, the second part of the OTS capital gains tax review has not been published yet and big changes like this would typically be announced in a Budget.
Two interesting announcements on future tax change were also made. Firstly, the government announced that they would be consulting on the introduction of a new tax on residential property developers, to help pay for the costs of cladding remediation. This tax will be introduced in 2022 and consulted on in the new few months. Secondly, the government will be reviewing the tax treatment of Superfunds, which are consolidation vehicles for defined benefit pension schemes. No timeline has been given for this review.
Also in the pipeline is the government's review of the VAT treatment of management fees, which was announced in the March 2020 Budget, but has not yet been published. It remains to be seen whether there will be a renewed focus on VAT groups as part of that consultation.
The lack of consultations into measures which could raise significant amounts of tax revenue, coupled with the sizable hole in public finances, is perhaps indicative of a second Budget later in 2021. It will be interesting to see whether the Chancellor announces an Autumn Budget later on this year. To keep abreast of this and other important changes, stay tuned to our Budget website.
Return to Budget 2021.
Follow us on LinkedIn for updates from Travers Smith Tax.