TT345: “Tax Day” announcements 2021 – what it could mean for your future taxes
On Tuesday 23 March 2021, the government published a series of tax documents and consultations, with a view to strengthen policy making and modernising the tax system. Whilst the consultations are not set in law, they give an indication of the changes that might take place in future. Here we look at the key points raised and the potential impact on businesses and business owners.
Modernising tax administration
Making tax digital “MTD”
For many VAT registered businesses, MTD has been part of their VAT compliance for almost 2 years. The Finance Bill 2021 confirmed that this will be extended to smaller VAT registered businesses from April 2022.
As previously announced, the government intends to legislate later this year to extend MTD to Income Tax Self-Assessment from April 2023, in further attempts to reduce the risk of “lost” tax. This will of course increase the administration for those under Self-Assessment and their accountants.
The government is exploring increasing the frequency of Income Tax and Corporation Tax payments.
For those under Self-Assessment, this could mean individual taxpayers making income tax payments in line with when the income is earnt (similar to a PAYE style arrangement), rather than twice a year.
Many SMEs currently pay their corporation tax 9 months and 1 day after their accounting period, however the guidance issued could mean that these companies will need to start paying their corporation tax in advance, in a mechanism similar to the existing quarterly instalment regime for large companies.
Reducing inheritance tax reporting requirements
This was one of the recommendations from the Office for Tax Simplification. With effect from 1 January 2022, over 90% of non-taxpaying estates each year will no longer have to complete inheritance tax forms for deaths when probate or confirmation is required.
In addition, those dealing with a trust or estate inheritance tax return will no longer be required to obtain physical signatures.
Off-payroll working rules
The off payroll working rules came into effect in the public sector in 2017, and in April 2021 will be introduced into the private and voluntary sectors. The government will be publishing external research into the impact of the 2017 public sector reform, with details of its findings, ahead of April 2021.
No Safe Havens
This strategy is intended to ensure taxpayers comply with their UK tax obligations regardless of where their income or gains are made, with their initial discussion documents focused on helping taxpayers “get offshore tax right” and preventing/collecting international tax debt.
Further tax policy announcements
Fundamental review of business rates
The government will be publishing a report covering contributions received, the overall level of tax, revaluations, administration, billing and alternatives to business rates, with the review estimated to conclude in the autumn. Linked to business rates, there are also proposals to change the criteria of determining business rates for holiday lets, to account for the actual days the property was rented.
Review of the Office of Tax Simplification (OTS)
The government will be reviewing the effectiveness of the OTS as required by Finance Act 2016, in providing advice and recommendations on simplifying the tax system. The OTS recently caused concern to business owners with some of its proposals to change the capital gains tax regime, so the outcome of this review could be interesting to see how the OTS might influence future government policy.
Residential property developer tax
The government are due to publish a consultation on a new tax for the larger residential property developers. A new tax will be introduced in 2022 which will help pay for the costs of cladding remediation.
Partial Exemption and Capital Goods Scheme
The government is publishing a summary in consideration of the simplification of the VAT Partial Exemption rules and the associated Capital Goods Scheme. Certain VAT registered businesses are currently required to make adjustments to their VAT returns where a proportion of their income is classed as exempt for VAT purposes, which can cause some confusion with the calculations. In addition, the Capital Goods Scheme can cause confusion when companies purchase certain capital items, but circumstances cause a change in use. The simplification of these would be a welcome change to business owners and accountants.
Transfer pricing documentation
The government is publishing a consultation on whether businesses should be required to maintain transfer pricing documentation, which will include a review of country-by-country reporting.
The above is only an outline of some of the key points raised, but if you would like any further information on any of the above topics, then please do not hesitate to contact a Barnes Roffe partner today.Talk to Barnes Roffe today