Government publishes a range of consultations and reviews on Tax Day, focusing primarily on the modernisation of the tax system.
On 23 March 2021, ‘Tax Day’, the Government published a range of consultations and reviews. As expected, the primary focus was the modernisation of the tax system, boosting compliance and streamlining tax payments. However, there was little information on future policy direction and more ‘high profile’ areas such as online sales tax, taxation of work, taxation of wealth and environmental taxes were not covered. In this article we look at the main Tax Day announcements that affect businesses; the impacts for individuals are considered in a later article in this edition.
In addition to our coverage in this edition of Tax Matters Digest, a summary of the key takeaways for large businesses can be found in our Tax Day on-a-page.
Key announcements affecting business
You can find further commentary on some of the key Tax Day announcements in this edition of Tax Matters Digest as follows:
In addition to the key announcements noted above, there were a number of other points of note in the Government’s Tax Day command paper, a selection of which are summarised below.
Tax on residential property developers
The Government will publish a consultation in the coming months on a new tax on the largest residential property developers following the 10 February announcement by the Secretary of State for Housing, Communities and Local Government. The tax will be introduced in 2022 to help pay for the costs of cladding remediation.
Structures and Buildings Allowance
Amendments are being made to the Structures and Buildings Allowance (SBA) statement requirements, to include the date the expenditure is treated as incurred for SBA purposes. Under the SBA rules expenditure is treated as incurred, and allowances begin to be claimed, at the date the qualifying building is brought into non-residential use or alternatively can be deferred to the first day of the following period. The later approach is potentially attractive to businesses with large volumes of annual projects across multiple sites, as it avoids the need to apply the restricted apportionment of the 3 percent allowance in the first period. The requirement to confirm the date expenditure was treated as incurred within allowance statements removes any confusion regarding the balance of SBA available where there is a change in ownership.
The requirement of this additional information within allowance statements is further evidence that HMRC expect any SBA claims by subsequent owners of property to be supported by allowance statements shared by the seller. It is therefore important that businesses retain robust records of their SBA expenditure, both to support current claims and to be able to share this at the point of transfer with subsequent owners. In absence of this evidence to pass on, the seller will be exposed to a potential reduction in sale price to the extent the buyer is unable to benefit from the expected tax reliefs.
The Treasury published its business rates review interim report. As expected, the report was a summary of the responses received to the consultation and offered little in terms of any indication of the potential fundamental changes to business rates in the medium to long term. However, what is clear from the responses is that one area in particular – Online Sales Tax – remains divided. We expect stakeholders will continue to formulate and submit evidence in this regard in the coming months. A final report is expected in the autumn, when there is, hopefully, more economic certainty.
In order to remove perceived barriers to the use of UK-based securitisation structures, the Government is consulting on expanding the range of assets which may be held by companies within the UK securitisation tax regime and clarifying/relaxing the requirements for the regime to apply. The consultation is also seeking to understand potential difficulties in the application of the stamp duty loan capital exemption to securitisation and insurance-linked security (ILS) structures and whether further clarification or a broadening of the exemption is required.
HMRC published research on the impact off-payroll working reforms have had on employment agencies and contractors. This examines the 2017 public sector reforms’ impact and the anticipated effect of the new regime that comes into force from April 2021. The study also considers what support HMRC should provide ahead of the 2021 reforms.
Further research has also been published on the 2017 public sector off-payroll working reforms’ effects on the education sector. In summary, the study found little indication that the 2017 changes reduced engagements with contractors and did not identify any other major issues arising from those reforms.
Air Passenger Duty
A consultation on Air Passenger Duty (APD) was published which looks at a number of areas. As announced at Budget 2020, the consultation looks at the case for amending the APD treatment of domestic flights. It seeks views on the Government’s initial position that in order to support UK connectivity following the UK’s departure from the EU, the effective rate of APD on domestic flights should be reduced and the potential options through which this could be achieved. It also seeks views on a potential increase to the number of distance bands, to align the tax more closely with the Government’s environmental objectives. According to the consultation document, together, these proposals could better reflect the Government’s priorities to balance domestic connectivity and environmental goals.
In August 2020 HMRC consulted on the establishment provisions, compulsory VAT grouping and grouping eligibility criteria for businesses currently not able to join a VAT group under the legislation (for example, limited partnerships). The Government has confirmed that in light of the responses, it will not take this any further.
Partial exemption and Capital Goods Scheme
In July 2019, the Government launched a call for evidence on the simplification of the VAT partial exemption and Capital Goods Scheme regimes. The outcome document confirms that HMRC will introduce a centralised application point, clearer application process and more Sectoral Frameworks.
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