The Government has published draft legislation for technical consultation for Finance Bill 2021/2022, which provides taxpayers with some expectations of future tax policy changes.
The draft legislation includes reforms that will allow for simpler tax reporting for the self-employed and small businesses, changes that are said to make the UK a more attractive location for asset holding companies, as well as further measures to clamp down on promoters of tax avoidance schemes.
In addition to the draft legislation, a report on Making Tax Digital (MTD) has also been published, considering how successful the scheme has been to date in achieving its objectives to simplify the existing tax system. The full report is available here.
The consultations on the draft legislation will run until 14th September 2021, and are detailed below.
Income Tax draft legislation
SIMPLIFIED TAX REPORTING FOR THE SELF-EMPLOYED AND SMALL BUSINESSES
Tax reporting amendments will change the way trading income is allocated to tax years, simplifying the taxation of trading profits for small businesses and self-employed traders.
Generally, businesses draw up annual accounts to the same date each year, called their accounting date, this is based on a business’s set of accounts ending in the tax year (5 April).
Complex rules apply when a business starts and draws up its accounts to a date different to the end of the tax year, which can be confusing to understand, and results in thousands of mistakes in self-employed tax returns each year.
The proposed change means that businesses will be taxed on profits arising in the tax year itself, regardless of its accounting date.
If passed, a transitional period would take place from 2022/2023 and changes would come into effect from 2023/2024.
INCREASE IN THE NORMAL MINMUM PENSION AGE
This proposal will increase the normal minimum pension age from 55 to 57 in 2028, which is the minimum age a pension can be accessed without receiving an unauthorised payments tax charge, unless retirement is as a result of ill health.
EXTENSION TO PENSION SCHEME INFORMATION AND NOTICE DEADLINES
This measure extends the reporting and payment deadlines for scheme pays.
A scheme pays process occurs when an individual exceeds their annual allowance in pension contributions, and therefore a tax charge is due. As part of a scheme pay, the individual can ask their pension scheme administrator to settle their annual allowance charge of £2,000 or more, from a previous tax year. This then reduces the individual’s future pension benefits.
This measure will apply to all qualifying individuals within scope of a retrospective annual allowance tax charge of £2,000 or more, and will come into force from April 2022, and will also apply retrospectively from April 2016.
Corporation Tax draft legislation
NEW RULES FOR THE TAXATION OF QUALIFYING ASSET HOLDING COMPANIES
New changes to the tax system are proposed with the aim of making the UK a more attractive location for asset holding companies (AHCs).
AHCs are used in a range of collective investment structures to hold investment assets, and a qualifying asset holding company must:
- be at least 70% owned by diversely owned funds, managed by regulated managers or certain institutional investors
- exist to help move capital, income and gains between investors and underlying investments
The changes, include exempting gains on disposals of certain shares and overseas property, and allowing deductions for certain interest payments as well as other changes which have yet to have the provisions included in the draft legislation.
NEW RULES FOR REAL ESTATE INVESTMENT TRUSTS
This measure amends the tax rules that apply to Real Estate Investment Trusts (REIT), taking effect from April 2022.
- Changes to the conditions that a company must meet to be a UK REIT
- Amendments to the definition of an overseas equivalent of a UK REIT
- Removing the ‘holder of excessive rights’ charge to corporation tax for certain investors
AMMENDMENTS TO THE HYBRID AND OTHER MISMATCHES RULES
This amendment will affect multinational groups with UK parent or subsidiary companies that undertake cross-border transactions involving hybrid entities.
The legislative changes will attempt to counter mismatches for payments to hybrid entities, ensuring the outcome is proportionate when hybrid entities are seen as transparent in their home jurisdiction.
CHANGES TO THE ALLOWANCE STATEMENT FOR STRUCTURES AND BUILDINGS ALLOWANCE
This change requires businesses making a claim for structure and buildings allowance (SBA) to record additional information on the allowance statement.
The minor amendment will make it easier for businesses to assess if they are entitled to structures and buildings allowance.
Other draft legislation
PROPOSALS TO CLAMP DOWN ON PROMOTORS OF TAX AVOIDANCE
Proposed legislative changes introduce further measures to clamp down on promoters of tax avoidance schemes.
The proposals include new powers allowing HMRC to:
- Name promoters of tax avoidance at the earliest possible stage, including details of the schemes they promote to warn taxpayers of risks
- Make UK entities who facilitate the promotion of tax avoidance by offshore promoters subject to an additional penalty
- Seek freezing orders, preventing promoters from dissipating or hiding their assets before paying the penalties charged
- Present winding-up petitions for companies operating against public interest
MEASURES TO TACKLE ELECTRONIC SALES SUPPRESSION AVOIDANCE
This measure will provide HMRC with powers to tackle electronic sales suppression (ESS) tax evasion, where businesses deliberately manipulate electronic sales records to hide or reduce the value of individual transactions.
The new powers will allow HMRC to obtain details of businesses involved in the supply of ESS software and hardware, reducing the opportunity for ESS.
REQUIREMENT FOR LARGE BUSINESSES TO TELL HMRC ABOUT UNCERTAIN TAX TREATMENTS
Large businesses will be required to notify HMRC where they have adopted an uncertain tax treatment (as defined by notification criteria and a monetary threshold set out in legislation).
Large businesses are defined as those with:
- turnover of more than £200 million per annum
- balance sheet total over £2 billion
This measure is intended to help reduce tax losses caused by legal interpretation, and improve HMRC’s ability to identify uncertain tax treatments adopted by large businesses.
A more detailed list of the ongoing consultations can be found here.
We will continue to publish updates in relation to the Finance Bill 2021/22 as they are announced. To ensure you’re kept up to date, you can sign up to our mailing list here.
If would like any further information on how any of these changes may impact you or your business, please get in touch with a member of our specialist tax team.