Although there is no official Budget statement this Autumn, HMRC have published details of a series of measures affecting tax. Some of the changes will take place straight away or from April 2021, others are to be consulted on and included in draft Finance Bill 2021. The key announcements are summarised in the following paragraphs.
Capital allowances AIA extended
The Government has announced that it is extending the current temporary level of the Annual Investment Allowance (AIA) of £1,000,000 by one year covering 1 January to 31 December 2021.
This extension gives enhanced tax relief and simplifies taxes on plant and machinery expenditure, as well as providing businesses with upfront cashflow support during continuing Covid-related uncertainty.
It is expected that from 1 January 2022, the AIA will revert to £200,000 per annum.
HMRC have published a Summary of Responses received on the recent consultation on raising standards in the tax advice market. Broadly, HMRC have recognised that standards in the tax advice market need to be raised, ensuring people have access to good quality advice.
Next steps have been published, and include a consultation on the requirement for all tax advisers to possess appropriate levels of professional indemnity insurance. The consultation, expected next year, will also seek feedback on the definition of tax advice and the type of activities that should be included.
Off-Payroll working rules
The Government has announced its intention to make a technical change to the legislation relating to the off-payroll working (OPW) rules in the next Finance Bill. This corrects an unintended widening of the definition of an intermediary for the purposes of the rules. It will ensure that the legislation operates as intended from 6 April 2021 for engagements where an intermediary is a company.
Consultation on the design of MTD for CT
Taxpayers who are a medium or large-sized non-public sector organisation, or a contractor, need to start to prepare for the changes to the OPW rules, which will come into effect on 6 April 2021. HMRC recently published technical guidance about how it will apply the legislation in practice.
In July, the Government published Building a trusted, modern tax administration system, and indicated its intention to extend the Making Tax Digital (MTD) system to corporation tax.
A consultation on the design of MTD for corporation tax has subsequently been launched and will run until 5 March 2021.
The Government has confirmed that MTD for corporation tax will not become compulsory for companies until at least 2026.
Tackling promoters of tax avoidance
HMRC are taking further action to tackle promoters of tax avoidance schemes by introducing a new package of measures. These are designed to disrupt the business model of offshore promoters, directly tackle the secrecy on which promoters rely, disrupt the economics of tax avoidance by ensuring that promoters face financial consequences and give HMRC additional powers to act against companies that continue to promote schemes.
In spring 2021 the Government will consult on:
- making UK partners equally responsible for the anti-avoidance regime penalties incurred by offshore promoters;
- giving taxpayers more information on the products sold to them by promoters;
- ensuring promoters face quick and significant financial consequences for promoting tax avoidance so they do not continue to profit while HMRC investigates them; and
- providing HMRC with additional powers to shut down promoters that continue to promote schemes and to stop them from setting up similar businesses.
Tackling CIS abuse
The Government announced at Spring Budget 2020 a consultation to tackle abuse of the Construction Industry Scheme (CIS). A consultation document was published 19 March 2020 setting out proposals.
HMRC have published a policy paper covering a number of amendments to the CIS, which will take effect from 6 April 2021.
The amendments provide a power to allow HMRC to amend the CIS deduction amounts claimed by sub-contractors on their Real Time Information (RTI) Employer Payment Summary (EPS) returns. This power will be used to correct errors or omissions relating to the claims, to remove claims, and to prevent certain employers from making further similar claims, where employers do not provide evidence of eligibility and/or evidence of the sums deducted, and do not correct their EPS at HMRC’s request.
The changes cover:
- Cost of materials – the measure makes it clear that it is only where a sub-contractor directly incurs the cost of materials purchased to fulfil a construction contract, that the cost in question is not subject to deduction under the CIS.
- Deemed contractors – the measure changes the rules for determining which entities operating outside the construction sector need to operate the CIS (‘deemed contractors’). Rather than looking back at each year end to determine the level of construction expenditure these businesses will need to monitor that expenditure more regularly and apply the CIS when construction expenditure exceeds £3 million within the previous 12 months.
- CIS registration penalty – the measure expands the scope of the penalty for supplying false information when applying for gross payment status (GPS) or payment under deduction within the CIS. Individuals and companies will now be liable to a penalty if they are in a position to exercise influence or control over the person making the application, and either encourages that person to make a false statement or supply a false document in support of that application; or where they themselves make a false statement or supply a false document for the purpose of enabling another person to register for GPS or payment under deduction.
Preventing abuse of R&D tax relief for SMEs
HMRC have published a policy paper covering a change to the research and development (R&D) tax relief rules for small and medium-sized enterprises which will take effect from 1 April 2021.
From 1 April 2021, the amount of payable small or medium sized enterprise (SME) R&D tax credit which a company can claim in a period will be limited to £20,000 plus 300% of its total PAYE and National Insurance contributions liability for the period.
Further information can be found in the policy paper Preventing abuse of Research and Development tax relief for small and medium-sized enterprises.
HMRC have published a policy paper covering a series of amendments to the hybrid and other mismatches regime. These changes are intended to ensure that the UK’s hybrids rules are appropriately targeted and proportionate, with the benefit of three years of UK experience since the rules came into effect; and taking into account the international landscape as other jurisdictions implement the relevant recommendations from the OECD’s Base Erosion and Profit Shifting (BEPS) project.
The outcome of the recent consultation on hybrid and other mismatches can be found at https://www.gov.uk/government/consultations/hybrid-and-other-mismatches.
The Government welcomes comments on the draft legislation by 7 January 2021.
Plastic packaging tax
HMRC have published a policy paper covering the introduction of a new plastic packaging tax, which is expected to take effect from April 2022.
The tax will apply to plastic packaging produced in, or imported into, the UK, that does not contain at least 30% recycled plastic. Plastic packaging is packaging that is predominantly plastic by weight. It will not apply to any plastic packaging which contains at least 30% recycled plastic, or any packaging which is not predominantly plastic by weight. Imported plastic packaging will be liable to the tax, whether the packaging is unfilled or filled.
The outcome of the recent consultation on the plastic packaging tax can be found at https://www.gov.uk/government/consultations/plastic-packaging-tax-policy-design.
Tobacco Uprate Duty
Tobacco duties increased with effect from 16 November 2020.
All tobacco products will increase by 2% above Retail Price Index. Hand-rolling tobacco will rise by an additional 4%, to 6% and the Minimum Excise Tax by an additional 2%, to 4% above Retail Price Index inflation this year.
Tax implications of the withdrawal of the London Inter-Bank Offered Rate (LIBOR)
HMRC have published a policy paper covering a measure to ensure that the leasing provisions continue to function as intended once LIBOR is discontinued.
The measure also introduces a power to allow any unintended tax consequences arising from the transition away from LIBOR and other benchmark rates by businesses and individuals to be addressed in secondary legislation.
The measure will have effect from the date of Royal Assent to Finance Bill 2021.
The outcome of the recent consultation on the taxation impacts arising from the withdrawal of LIBOR can be found at https://www.gov.uk/government/consultations/consultation-on-the-taxation-impacts-arising-from-the-withdrawal-of-libor
Notification of uncertain tax treatment by large businesses
To give affected businesses time to prepare, the Government is delaying, until April 2022, the implementation of a new requirement for large businesses to notify HMRC where they have adopted an uncertain tax treatment. Further consultation will ensure the final design tackles the tax gap in a proportionate and effective manner whilst keeping administrative burdens to a minimum.
Timely tax payments and review of tax administration framework
On 21 July 2020, the Government committed to publishing calls for evidence on Timely Tax Payments and a Review of the Tax Administration Framework. Given the continued pressures of the Covid-19 outbreak, and with other consultations in progress, the Government has confirmed that it will now publish these documents in Spring 2021.