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What does the future tax landscape look like?
Julian Ball | Legal Director
Tuesday 23rd Mar, 2021
At his Budget on 3rd March Chancellor Rishi Sunak was sparing in the detail of the Government’s long-term COVID-19 tax recovery plans.
Budgets and their background documents normally provide us with a clue as the tax strategy for the coming few years through the publication of HM Treasury’s consultation and discussion papers. The subjects of the ‘call for evidence’ gives us an insight into the Government’s medium - longer term fiscal thinking.
This year these plans were slightly held back until today to allow for more consideration and scrutiny at a time when there are so many pressing health and economic issues occupying the minds of parliamentarians.
The focus of HM Treasury’s command paper titled ‘Tax Policies & Consultations Spring 2021’ published today is around 3 key issues. Let’s look at the components forming each of the announcements.
Modernising Tax Administration
Making Tax Digital (MTD) has been a flagship endeavour to bring the UK tax machinery into the 21st century. It started in 2019 and the timetable of its wider introduction is confirmed in today’s statement. Limited company contractors are likely to be already familiar with MTD for VAT and HMRC’s plans are in hand to bring forward legislation to implement MTD for Income Tax Self- Assessment from 2023.
Investing in HMRC’s digital infrastructure is the genesis of how the tax system is to be modernised and service delivery improved. One of the key targets is a ‘once and done’ tax registration service to cover all taxes.
There will be a public consultation on tax administration: how it can be made more straightforward and transparent.
Getting taxpayers and businesses to pay their tax on time has long been an issue for HMRC. A further public consultation around ‘timely payment’ will explore approaches to encourage the payment of income tax by individuals and small businesses and of corporation tax by small companies to help reduce the ‘tax gap’.
Speculation preceding today’s announcements was accurate in predicting a reduction in the administration needed for Inheritance Tax (IHT). Simplified reporting arrangements are to come into effect from 1st January 2022 meaning that over 90% of non-taxpaying estates won’t need to complete IHT declarations when seeking probate.
Today’s announcements included the promised publication of a package of measures designed to clamp down on the promoters of tax avoidance.
There will also be publication of responses received as a result of the 2020 call for evidence around tackling disguised remuneration. This action followed as a result of lobbying applied by the contracting industry which led to the launch of the Independent Loan Charge Review.
The external research commissioned by the Government into the impact of the off-payroll working rules as they affected the education sector and employment agencies was to be published before 5th April 2021. However, the COVID-19 pandemic delayed responses and it was felt that the true effect on the public sector could not be determined without an adequate response from the stakeholders. Unfortunately, this important piece of work is now unlikely to be published until the autumn 2021 – missing the important deadline of 5th April 2021 for the implementation of the rules in the private sector.
Further Treasury proposals including the ‘No Safe Havens’ strategy, managing offshore compliance and collecting international tax debt will be published for discussion soon.
Tax Policy Announcements
Finally, the headline tax policy announcements included:
A much-anticipated review of business rates which is expected to conclude in the autumn of 2021. The contentious issue of second homes being claimed as holiday lets is likely to be addressed here.
There will be a consultation about a possible new tax on large residential property developers to help to pay for the costs of cladding remediation.
Described as a ‘pensions technical update’ there was an announcement of limited changes in the pension tax rules intended to correct certain anomalies in the ‘Scheme to pay’ arrangements. Nothing was said about any changes to mainstream pension rules, allowances or rates – something which may be of relief to many!
VAT affecting large businesses and the public sector receives particular attention in a series of proposed consultations. For individuals and small businesses there is to be a call for evidence on the VAT Land & Property exemption rules aimed at trying to make them simpler and clearer.
This latest raft of signposts to the Government’s future tax policies did not give much away. It remains to be seen, probably in an autumn Budget, what tax raids will emerge in an attempt to recoup the massive financial hole created by the pandemic.