A roundup of further announcements in the Budget.
In addition to the key measures discussed elsewhere in this edition of Tax Matters Digest, the Chancellor made a number of other announcements in the Budget that will have an impact on businesses and individuals. We have included separate roundups of COVID-19 support and VAT measures. The remaining other measures are covered here and include the abolition of rules implementing the Interest and Royalties Directive, a review of tax administration for large business, changes to the off-payroll working reforms and investment in HMRC compliance activity and technology.
Abolition of rules implementing the Interest and Royalties Directive
The legislation implementing the EU Interest and Royalties Directive (ss914-917 ITA07) will be abolished for interest paid from 1 June 2021. There will be an anti-forestalling rule that denies application of the exemption from 3 March 2021 (instead of 1 June 2021) where the payment is made under arrangements having a main purpose of securing application of the exemption.
OECD mandatory disclosure rules
The Government has confirmed its intention to consult later this year on draft regulations to implement the OECD’s Mandatory Disclosure Rules (MDR), following the announcement at the start of this year that the UK would not proceed with full implementation of EU MDR (DAC6).
Reporting rules for digital platforms
Pursuant to the OECD ‘Model Rules for Reporting by Platform Operators’ issued in July 2020, Finance Bill 2021 will enable the Government to make regulations which will require the operators of UK digital platforms that facilitate the provision of services to report to HMRC the income of sellers on their platform. HMRC will then, where appropriate, exchange the information with the tax authorities of the countries where the service providers are resident.
‘Digital platforms’ include apps and websites which facilitate services such as the provision of taxi and private hire services, food delivery services, freelance work and the letting of short-term accommodation. This measure does not currently affect UK digital platforms that facilitate the sale of goods and UK taxpayers who use these digital platforms to sell goods, but these groups may be affected in the future. There will be a consultation process in summer 2021, with the regulations not expected to come into force before 1 January 2023 and reporting not due until January 2024.
Hybrid and other mismatches
On 12 November 2020, HMRC announced a number of largely helpful proposed changes to the hybrid and other mismatches legislation to ensure that the regime operates proportionately and as intended. On Budget Day 2021, HMRC issued a revised policy paper, which: (i) tweaks some of the previously proposed changes; (ii) amends the start date for some of them; and (iii) introduces a handful of new additional proposed changes. Again, these latest tweaks and changes are largely helpful to taxpayers.
Groups who were previously interested in these proposals would therefore be well advised to take a look at the latest policy paper to determine to what extent they may be affected. No further draft legislation for the proposed changes has been published at this time, but is expected to be included in the Finance Bill on 11 March 2021.
The off-payroll working reforms will come into effect on 6 April 2021 as expected. Changes will be made to the definition of ‘intermediary’ to prevent an unintended widening of its scope in relation to corporate entities, and also to prevent abuse. Other minor changes will be made to make it easier for parties in a labour supply chain to share information, and to allow HMRC to take action against UK based entities in the supply chain who provide fraudulent information.
The standard lifetime allowance for pension savings will be frozen at £1,073,100 for 2021/22 to 2025/26. This could have a potentially significant effect on pensions tax planning, especially if inflation is high over this period, as ensuring contributions are within annual allowance limits will not necessarily prevent the lifetime allowance being exceeded.
The Government announced reforms to the immigration system intended to attract highly skilled global talent. These include introducing an elite points based visa by March 2022, which will fast track individuals with a job offer from a recognised UK ‘scale-up’, reviewing the innovator visa to make it easier for those with relevant skills and experience to find an appropriate business in order to obtain a visa, and publishing a roadmap in summer 2021 for modernising the sponsorship system.
Social Investment Tax Relief
Social Investment Tax Relief due to end in April 2021 has been extended to April 2023. This will continue the availability of income tax relief and capital gains tax hold-over relief for investors in qualifying social enterprises, helping them access long-term capital.
Tax administration and compliance
Review of tax administration for large businesses
The Government has confirmed that it will review large businesses’ experiences of UK tax administration, including the degree to which it provides businesses with early certainty where appropriate, ensures the efficient resolution of disputes in accordance with the law, and promotes a collaborative and constructive approach to compliance with the law. It is understood that discussions will be initiated with businesses, advisers and stakeholders over the coming months, to solicit views and build an understanding of the perceived challenges in this area, with a view to considering what improvements can be made.
Investment in HMRC
The Government also confirmed that it will invest a further £180 million in 2021-22 in additional resources and new technology for HMRC. This is forecast to bring in over £1.6 billion of additional tax revenues between now and 2025-26.
According to the Government, the funding will enable HMRC to invest in IT systems, recruit additional compliance staff to target non-compliance through illicit financial flows, carry out initial design and development of digitalising business rates, and continue to fund compliance work on the loan charge, historic disguised remuneration cases and early intervention to encourage individuals to exit tax avoidance schemes.
The Government will also set up a new Taxpayer Protection Taskforce of 1,265 HMRC staff who will focus on investigating fraudulent claims under the Coronavirus Job Retention Scheme and Self-Employed Income Support Scheme.
Powers to tackle Electronic Sales Suppression (ESS)
Measures will be introduced to make the possession, manufacture, distribution and promotion of ESS software and hardware an offence. This is to enable HMRC to tackle tax evasion undertaken by those businesses that use software and hardware to hide or reduce the value of transactions and the corresponding tax liabilities.
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