Market leading insight for tax experts
View online issue

Tax day 2021: the key announcements

printer Mail

As announced at Spring Budget 2021, the government has published a number of new consultations and updates on existing consultations, together with announcements on reforms to take forward the government’s ten-year tax administration strategy.

By publishing these measures separately from the Budget, the government intends to create greater visibility and transparency for MPs, tax professionals and other stakeholders. The aim is to increase scrutiny of the measures and so improve the quality of tax policy and legislation. The move is described as a reform, suggesting that we can expect to see consultations published separately from the Budget again in the future. None of the measures announced on 23 March 2021 are to be included in the Finance Bill 2021 (FB 2021).

Headline announcements include changes to air passenger duty and business rates, as well as more measures to counter promoters of tax avoidance schemes, and a consultation on introducing a requirement for tax advisers to hold professional indemnity insurance. It is also notable that some processes that were introduced as coronavirus (covid-19) practical easements are becoming standardised. For instance, the online time to pay arrangements which were introduced to deal with this year’s self-assessment deadline are being expanded to more taxes.

There was little new announced of interest to private client advisers. There was an absence of any development relating to CGT, further to the Office of Tax Simplification’s report published last November. There was also no mention of the wealth tax, despite the final report of the Wealth Tax Commission published last December. Perhaps to the relief of many, a comprehensive reform of how trusts are taxed appears to have been ruled out for now.

The various documents and announcements are summarised below.

Business tax

Notification of uncertain tax treatment by large businesses

Following an initial consultation published in March 2020 on the requirement for large businesses to notify HMRC when they take an uncertain tax position that HMRC may not agree with, the government has published its response and a second stage consultation. The notification requirement is part of a package of measures aimed at improving the transparency of the approach large businesses take towards taxation and is designed to minimise what the government refer to as the ‘legal interpretation tax gap’. As previously confirmed in a written statement to Parliament on 12 November 2020, the implementation of this requirement is delayed until April 2022.

Summary of responses to first consultations: An initial consultation was launched in March 2020 and closed on 27 August 2020. The first consultation invited views on how the notification regime could operate and any concerns that large businesses and agents representing large businesses had in relation to the proposed changes. The government has published a summary of the responses received. The main proposals identified in the summary of responses are:

  • The scope of the regime will be initially restricted to corporation tax, VAT and income tax (including employment taxes).
  • The threshold for what is a large business, and therefore within scope of the notification measure, will continue to be modelled on the senior accounting officer (SAO) regime.
  • The deadline for notification will not be aligned with the SAO certificate deadline, as initially expected, but will instead be required at the same time as the relevant return. A separate notification would be required for each tax regime. Further views on this are now invited as part of the second consultation (see below).
  • The requirement to notify (and any penalty for failing to notify) will fall on the relevant business entity, rather than on one individual, except in circumstances where the failure to notify relates to a partnership and the uncertainty is in respect of the partnership return. Further views on how the penalty regime would operate in relation to partnership returns are invited as part of the second consultation (see below).
  • The tax threshold for reporting will be increased to £5m (rather than £1m, as originally proposed). Further amendments to the reporting threshold are being considered as part of the second consultation (see below).
  • A series of objective tests will be developed which while less reliant on the principles of IFRIC 23 will still include some aspects of it. The government proposes issuing a specific list of common uncertain tax treatments, along with HMRC’s view, which could be published alongside the guidance to improve understanding (these have been provided as part of the second consultation).

Second stage consultation: On 23 March 2021, the government published a second consultation on the requirement for large businesses to notify HMRC when they take an uncertain tax position, which builds on the responses received as part of first consultation. The main aim of the second consultation remains unchanged from the first in order to ensure that HMRC is aware of all cases where a large business has adopted a treatment that is contrary to HMRC’s known position and to bring forward the point at which discussions occur on uncertain treatment.

The scope of the second consultation invites views on the following:

  • The definition of ‘uncertain tax treatment’ and how this could be made less subjective for large businesses interpreting the scope of the rules. A series of seven triggers ((a)–(g)) have been published and views are invited as to whether these are sufficiently objective.
  • The possibility of the threshold for notification being based on an individual materiality threshold for each business (rather than a standard threshold of £5m) and on the proposed method used to calculate whether the threshold has been exceeded.
  • The process for notification and whether notification for each tax should be made via a single notification (similar to the SAO rules) or should be made separately when each relevant tax return is due.
  • Where the failure to notify relates to a partnership return, should the penalty be charged on the nominated partner or whether there is a more appropriate person that the penalty should be levied.

The consultation will run until 1 June 2021. The government is expected to publish its response, along with draft clauses, in summer 2021. Legislation will be introduced in Finance Bill 2021 and will take effect from April 2022.

See: Notification of uncertain tax treatment by large businesses – second consultation.

Practitioner comment: ‘HMRC has opened a second round of consultation on proposals to require large businesses to notify “uncertain” tax positions taken in their returns. Significant concerns raised in response to the first consultation last year have not dissuaded HMRC entirely (expect new rules from April 2022), but have prompted a welcome rethink on a number of points. The in-scope taxes will be limited to corporation tax, income tax (including PAYE) and VAT, and the proposed threshold raised to £5m. The notification obligation (and any consequent penalties for failure) will fall on the taxpayer itself (rather than on an identified individual), and will be aligned with returns timelines for the relevant taxes. HMRC is also clear that the regime should operate as a “top up”, i.e. the new requirement should not bite if a taxpayer has disclosed the relevant issue to HMRC through other channels, including in “real time” discussions with a CCM. As regards the key question of what amounts to an “uncertain” position, the first-round proposal seemed to require taxpayers to second-guess whether HMRC would disagree with them; HMRC now accepts that it needs to develop a more objective set of criteria, as well as to find a way of dealing appropriately with transfer pricing matters. Taxpayers and advisers should (continue to) engage with the consultation process, however, because some of HMRC’s suggestions here (e.g. ‘novel’ situations, or anything with an accounting provision, or where there is conflicting, but non-privileged, advice) still potentially overreach, and are themselves rather uncertain!’ Paul Davison, partner, Freshfields Bruckhaus Deringer
Reform of the taxation of securitisation companies

The government published a consultation on reform of the taxation of securitisation companies which aims to ‘explore options to clarify and update elements of the rules that determine the taxation of securitisations and of transactions involving insurance-linked securities (ILSs)’ in order to ‘modernise the tax regime to reflect the developing market, enhancing the competitiveness of the UK financial sector’.

In particular, the government is seeking views on:

  • permitting an originator to acquire (or retain) more than 50% of the notes issued by the note-issuing company and for the issuer to still be able to be taxed only on its retained profit;
  • extending the scope of assets that can be securitised to, for instance, include shares held in limited circumstances, such as shares resulting from a restructuring or bailout of an existing securitisation;
  • the impact of the £10m minimum value threshold on issue which may restrict access to the securitisation regime to certain sectors, such as the charities sector;
  • how best to address uncertainty about the applicability of the loan capital exemption from stamp duty to (i) the transfer of notes issued in securitisation arrangements where the returns are related to the profits of a business or carry a right to an excessive rate of return or repayment, and/or (ii) transfers of pools of small loans where it is not economically viable to undertake due diligence to check that each loan qualifies for the loan capital exemption; and
  • how best to address uncertainty about the applicability of the loan capital exemption from stamp duty to notes issued by insurance special purpose vehicles or ISPVs.

The consultation runs until 3 June 2021 and the summary of responses is expected to be published in summer 2021.

See: Reform of the taxation of securitisation companies.

Practitioner comment: ‘The most significant aspect of the consultation on securitisation companies relates to “retained securitisations” (where more than half of the notes are issued by the securitisation company to the asset seller or a related entity). These deals first emerged as a response to the financial crisis (as banks sought to create securitisation paper to access various Bank of England liquidity schemes) but have evolved to become a very important treasury management tool for banks and other finance houses (allowing funding to be raised from liquidity schemes, the repo market or private placements when required by selling notes held in treasury). However, retained transactions sit rather uncomfortably in a securitisation tax regime which contains a key provision requiring that the majority of the debt of a “note issuing company” is issued to “independent persons”. Whilst market practice (supported to some extent by well-known HMRC correspondence) has emerged amongst advisors to the effect that such transactions do not breach the “independent persons” condition, the precise boundaries of what is permissible are unclear. It will be important to the stability of a key part of the market that the outcome of the consultation on this point is satisfactory to all concerned.’ Chris Davies, global head of tax, Clifford Chance
Transfer pricing documentation

The government has published a new consultation on the current transfer pricing documentation requirements. The driving force behind this is to ensure that the existing UK requirements remain fit for purpose and best serve the needs of HMRC and UK businesses. International tax moves at pace and, as it has now been more than five years since the introduction of the country by country (CbC) reporting regime, a review is timely.

The consultation seeks views on many issues (18 specific consultation questions are raised), which broadly cover the following points:

  • a mandatory requirement for companies within CbC reporting groups to provide HMRC with a copy of the master file upon request and to keep (and produce on request) a local file;
  • the requirement for additional supporting evidence logs for local files;
  • various administration issues around timescale for creation of files, appropriate metrics to determine any de minimis thresholds;
  • the suitability of existing systems to provide transfer pricing data, use of International dealings schedules (IDS) to report transactional data to HMRC in a structured format; and
  • any other general feedback and observations, including, in particular, feedback based on experiences from other jurisdictions.

The consultation runs until 1 June 2021. There are no fixed ‘next steps’. HMRC simply commits to reflect on the responses received to determine if there are sufficient grounds to consider updating the current transfer pricing documentation requirements.

See: Transfer pricing documentation.

Practitioner comment: ‘The introduction of specific transfer pricing documentation and reporting requirements would be a very significant policy change for the UK. One of the objectives of HMRC is to “align” its approach to TP documentation with other tax jurisdictions. Having said that, a requirement for a formal “evidence log” within the local file would far exceed current OECD documentation standards. HMRC has clearly found such risk assessment aides particularly useful in the context of the profit diversion compliance facility programme to capture potential TP operational and implementation risk. Whether its requirement would be proportionate for MNEs that have a limited UK presence is something that HMRC acknowledges in the condoc. The potential requirement for all UK businesses to file an annual schedule reporting data about cross-border transactions with related parties comes as less of a surprise, as it follows very similar approaches taken by other tax authorities, but its potential scope is far wider than the documentation proposals: it is intended to capture relevant data on all cross-border transactions other than for those of small and medium-sized businesses that qualify for exemption from the UK transfer pricing requirement.’ Anton Hume, partner, BDO

Employment tax

Tackling disguised remuneration tax avoidance

The government published a summary of responses to its July 2020 call for evidence on tackling disguised remuneration (DR) tax avoidance. The call for evidence asked for views and evidence on several issues, including where the government can take further action to tackle DR tax avoidance beyond its planned approach. A number of other consultations that were relevant to the call for evidence were published in 2020, including the call for evidence on raising standards in the tax advice market (19 March 2020), the associated summary of responses and next steps (12 November 2020), the consultation on tackling promoters of tax avoidance (21 July 2020) and the summary of responses (3 March 2021).

The summary of responses on tackling DR tax avoidance concludes:

  • the current legislation to tackle DR schemes is effective;
  • HMRC will continue to look at ways of improving guidance, so that the position is clear to those considering using a DR scheme;
  • tackling promoters of these schemes should continue to be a priority. As such, the consultation on clamping down on promoters of tax avoidance (POTAS) will take this aspect forward (see below); and
  • there is not sufficient evidence that further intervention (beyond the enablers legislation and the POTAS consultation) is required in contingent labour supply chains at this time.

See: Call for evidence: Tackling disguised remuneration tax avoidance.

VAT and indirect taxes

VAT: partial exemption and the capital goods scheme

The government published a summary of responses to its July 2019 call for evidence on simplifying the VAT rules on partial exemption and the capital goods scheme (CGS). The call for evidence was published following recommendations made by the Office for Tax Simplification (OTS).

The response document published on 23 March 2021 sets out some changes HMRC will be making to its internal processes but does not announce any decisions on the rule changes that were proposed in the call for evidence. Instead HMRC will ‘keep under review’ the need for changes and ‘engage further with stakeholders’ about changes that ‘could be made in the future’. No timings are given for any possible next steps. Businesses will be disappointed that, in particular, there is no announcement about the potential lifting of the CGS threshold.

By way of reminder, the call for evidence considered:

  • removing the requirement for businesses to obtain HMRC’s approval for the use of a partial exemption special method (PESM), relying instead on the business declaring the PESM to be fair and reasonable, backed up with the ability for HMRC to review the PESM at any time and potentially apply penalties for misuse – HMRC suggested, in this context, an enhanced role for ‘sectoral frameworks’ (additional guidance for specific sectors of the economy developed with the involvement of the sector’s representative bodies);
  • increasing the partial exemption de minimis level, or removing the de minimis entirely; and
  • raising the CGS threshold for land and property (this is currently £250,000), changing the duration of CGS intervals, and/or removing computers from the CGS. The call for evidence did not specify a figure for a potential new CGS threshold for land and property, but stakeholders mentioned figures ranging from £500,000 to £5m.

The only concrete announcement accompanying the summary of responses relates to the first of these points: the PESM approval process. The requirement to seek HMRC’s approval will remain (for the time being) but HMRC will ‘shortly’ set up a centralised application point to which businesses can send their applications for approval of a PESM. There will be an accompanying application form, with the intention of minimising the need for HMRC to request further information and so speeding up the time it takes for HMRC to process an application.

See: Call for evidence: simplification of partial exemption and the capital goods scheme.

Practitioner comment: ‘Nearly two years on from the launch of the consultation, the initial HMRC response has arrived as part of “tax day”. Judged by outcomes, it lacks ambition. Three actions are promised:
  • A single point of application for PESMs, to avoid confusion concerning where submissions should go. Was that so very confusing? This seems a tepid response to the widely expressed concern that HMRC officers handling PESMs lack commercial knowledge. After all, PESM applications have long since been handled by specialist officers in the sinisterly named Tax Avoidance & Partial Exemption unit. Will the single point for application address the issue about competence of those approving the methods? We shall see.
  • An application form will be developed, completion of which will be mandatory prior to consideration. That hardly encourages iterative discussion about suitability of methods. A step towards red tape, rather than flexibility and professional interaction. And the actual form is not disclosed. Have they created it yet? Further discussion is promised, but the wheels grind slowly.
  • Sectoral frameworks are promised, but how flexible they will be, and whether they will be in sufficient detail, remains to be seen.
Missed opportunities are too numerous to mention, but here is one example: a simple fix would be to allow application to amend only one part of a PESM without starting from scratch. HMRC acknowledges that this was requested, but there is no sign it will be introduced.’ ­Graham Elliott, director, City & Cambridge Consultancy
Aggregates levy

HMRC is consulting on specific proposals to change an existing exclusion from the scope of aggregates levy and introduce a new exemption.

Businesses are invited to comment on the proposal to restrict the exclusion for aggregate returned, unmixed, to the site from which it came. This would particularly affect some aggregate from borrow pits used in construction. Views are also welcome on a proposed new exemption for by-product aggregate arising from laying underground utility pipes.

The consultation will be of particular interest to quarrying and construction companies, utility companies and pipe-laying contractors. Farmers, forestry organisations and planning authorities may also be interested.

The consultation closes on 15 June 2021.

See: Aviation tax reform: consultation.

Aviation tax reform

As announced at Budget 2020, the government is consulting on aviation tax reform and, in particular, the case for amending the APD treatment of domestic flights and for increasing the number of international distance bands.

The government’s initial policy position is that the effective rate of APD on domestic flights should be reduced, in order to support UK and regional connectivity. Such a proposed reduction would apply to all flights departing from a UK airport to a destination within the UK. This chapter seeks views on this initial position and the two potential policy options that could achieve this outcome, namely:

  • the introduction of an APD exemption for the return leg of domestic return flights; or
  • the introduction of a new band for domestic flights.

Views are also sought on a potential increase to the number of distance bands, in order to align the tax more closely with our environmental objectives.

The consultation closes on 14 June 2021.

See: Aviation tax reform: consultation.

Personal tax

Taxation of trusts

The government has published a summary of responses to the consultation on the taxation of trusts. It announced that the responses did not demonstrate that a comprehensive reform of trust taxation is required.

The government ran a consultation on the taxation of trusts from 7 November 2018 to 28 February 2019, inviting views on the principles of transparency, fairness and simplicity that it believes should underpin the taxation of trusts. In response, on 5 July 2019, the OTS issued its second report on IHT. See also the report published by the All-Party Parliamentary Group (APPG) for Inheritance & Intergenerational Fairness in January 2020 recommending the adoption of a new inheritance tax regime and research exploring the use of trusts which was also published on 7 November 2018.

The outcome of the consultation noted the following points:

  • While the principles of transparency, fairness and neutrality, and simplicity constitute a reasonable and worthy approach to trust taxation, these principles may not be the best starting point. The principles should also include certainty and stability, and the purposes of trusts, including as long-term vehicles for holding and passing on wealth (for tax and non-tax reasons), should be considered in determining how the tax system can, at least, not discourage their legitimate use.
  • There is support for trust information being transparent to government agencies. However, the effectiveness of measures aimed at improving transparency which already directly or indirectly affect trusts (including the OECD’s common reporting standard, the trust registration service (TRS) extended as a result of 5MLD as well as penalties and tax avoidance measures) should be properly assessed first before further measures are introduced. Respondents outside of the trust and tax professions were more concerned that trusts are elusive and can be used for illicit purposes.
  • Responses to questions relating to offshore trusts noted that there were significant non-tax reasons for establishing an offshore trust, and where tax reasons were in point there were few, if any, advantages for UK resident and domiciled settlors (although there may be advantages where such a person leaves the UK, or where a non-UK domiciled individual moves to the UK). Responses in this area also indicated few firms would be engaged in tax avoidance or evasion using offshore trusts, and that offshore jurisdictions are often highly regulated.
  • Most respondents agreed that, given the wide variety of uses of trusts, a single ‘one size fits all approach’ will not work in relation to trust taxation although they do agree that tax generated by using a trust should be largely neutral when compared with outright ownership.
  • There were mixed views on the nil rate band and general agreement on the 6% ten-year rate but the immediate entry charge to IHT at 20% was criticised as adding complexity and making trusts less attractive (and therefore not achieving neutrality).
  • There was general support for the principal private residence (PPR) relief rules as they apply to trusts, the rules relating to the deductibility of trust management expenses (TMEs) from income tax and respondents generally did not support a review of the treatment of receipts as capital or income for the purposes of trust law, which they considered were already largely settled.
  • Trusts for disabled persons and trusts for bereaved minors are considered unnecessarily complex and could be simplified in a number of ways to prevent unfair outcomes while having restrictions in place to avoid abuse.

The issues raised by the consultation will continue to be kept under review to ensure that the government’s long-term approach to the taxation of trusts meets its objectives. The government will review specific areas of trust taxation on a case by case basis, and the responses given to the consultation will be taken into account when those reviews take place.

See: The taxation of trusts: a review.

Practitioner comment: ‘HMRC’s long awaited response to the 2018 taxation of trusts consultation, that no fundamental reforms are required, is unsurprising. The original reasons for the consultation were unclear; it had quite a broad ambit and focused principles. There have also been two changes of chancellor since, so time has moved on and the Treasury has bigger issues to worry about! HMRC seemed concerned about potential unfairness in some areas but the responses (largely from advisers and professional bodies) seem to have allayed those concerns, e.g. they have retained PPR for trusts. Whilst the lack of immediate fundamental reform is welcome, there are some missed opportunities for improvement. There is a clear need to reform vulnerable beneficiaries’ trusts, particularly at a time of great concern for mental health; a return of lifetime qualifying interest in possession trusts – an idea that HMRC had seemed receptive to – would have been logical; and the UK trust industry could have benefitted significantly from enabling UK professional trustees to run offshore trusts without those trusts becoming resident here. Maybe there is no appetite for such changes, or maybe HMRC are leaving the door ajar for more fundamental IHT reform in future (albeit a huge exercise)? For now, yesterday’s response confirms that the government will continue to review trust taxation on a case by case basis.’ ­Sue Laing, partner, Boodle Hatfield
Social investment tax relief (SITR): responses to a call for evidence

The SITR is a tax incentivised scheme that supports qualifying social enterprises seeking finance, by providing tax incentives to encourage individuals to invest in them. The legislation contains a sunset clause for the SITR scheme to end in April 2021 (ITA 2007 s 257K). Two years ago, the government published a call for evidence on SITR which aimed to collect information on the take up of the scheme and its impact, in order to inform a decision about its future. The consultation has now closed and a summary of responses has been published.

Responses to the call for evidence include the following points:

  • access to suitable finance can be a barrier particularly for capital projects;
  • investments through SITR are an important funding option;
  • the value of typical investment sought by social enterprises varies significantly;
  • tax reliefs are a good way to de-risk and subsidise social investment;
  • take-up of SITR has been lower than anticipated (although the original assumptions were subject to significant uncertainty);
  • poor take-up may be due to low awareness and the scheme’s restricted eligibility criteria;
  • respondents reported difficulty in using SITR, though reasons behind the difficulty were varied;
  • there is a perceived lack of transparency of HMRC’s advance assurance service; and
  • measuring success of SITR can be difficult as measurement may need to include social value, and not purely financial measures.

It should be noted that the call for evidence pre-dated the ongoing coronavirus (covid-19) pandemic, so respondents could not have reflected on the effects of the pandemic on social enterprises and social investment. Social enterprises have been carrying out vital work to support their communities through the difficult times, and the government accepts that the funding landscape for social enterprises may have changed.

As a result of the responses and in recognition that many social enterprises are supporting communities across the UK through the pandemic, the government announced in Budget 2021 that it would extend SITR in its current form to 5 April 2023. The Finance Bill 2021 sets out the intended legislation in clause 20.

See: Social investment tax relief: call for evidence.

Reducing inheritance tax reporting requirements

The Office of Tax Simplification recommended in its Inheritance tax review – second report: Simplifying the design of inheritance tax, published in July 2019, that the administrative burden for those reporting inheritance tax events should be reduced. HM Treasury has accepted many of those recommendations. The key points are set out below:

  • No requirement for a tax form for most non-taxable estates: HM Treasury has consequently announced that, from 1 January 2022, only a relatively small number (less than 10%) of estates which have no inheritance tax liability but for which a grant of representation is needed will be required to submit inheritance tax forms. Regulations containing the detail will be published in the meantime.
  • Indirect interests in UK residential property: There will also be an amendment to the regulations to clarify the requirement for an estate to submit an inheritance tax return where the deceased was never domiciled in the UK but owned an indirect interest in UK residential property.
  • Signatures on inheritance tax returns: The current HMRC temporary practice of accepting inheritance tax returns for trusts and estates without a physical signature by the relevant parties will be made permanent.

See: Tax policies and consultations Spring 2021 (para 1.8).

Administration of taxes

The tax administration framework: ‘supporting a 21st century tax system’

The government published a call for evidence on the tax administration framework, which aims to discover how the legislation underpinning HMRC’s administration of the tax system could best be updated. The government had previously (in July 2020) announced its ten year tax administration strategy and this call for evidence (together with making tax digital and the call for evidence on timely payments) is intended to ultimately support changes to the tax administration system which will help deliver this strategy in the form of a ‘flexible, resilient and responsive tax system’.

Although there have been (numerous) consultations in the recent past which have touched on aspects of the tax administration framework, this review intends to ‘take a fresh look at the fundamentals of tax administration’. The scope is very wide, as the aim of any reform is to future-proof the tax administration system and build in flexibility. The government acknowledges it could mean different things to different people and an open ended question is included at the end of the call for evidence to seek further suggestions from respondents. There are also questions about what the scope of future consultations should be and how they should be designed to ensure that a wide range of viewpoints and areas of expertise are covered.

The questions themselves are divided into six categories:

  • reviewing the tax administration framework;
  • ensuring consistent obligations for people to enter and exit the tax system;
  • improving the way tax liabilities are calculated and assessed;
  • using data and information to make tax compliance effortless for the majority;
  • tax payments and repayments; and
  • building in effective methods of verification, sanctions and safeguards to promote compliance.

There are very few proposals in the call for evidence, and those that are given are more by way of an example of how things could change rather than a firm proposal. The emphasis is on how it could be possible to move to an administratively simpler tax system which has greater inter-linking between different taxes. Naturally, there is also discussion of real time information (which may ultimately lead to more frequent or earlier payments of tax liabilities) and how HMRC could collect and use data more widely, especially in relation to third parties (including other government departments).

The call for evidence acknowledges that workers in the gig economy are particularly badly served by the current tax system, as their tax affairs are more complex than a typical PAYE employee but the income tax self assessment system was not designed with them in mind. The intention is to develop a tax system which better fits this type of working, which presumably will only increase in the future. There is also an admission that ‘[t]here is room to improve the process for resolving tax disputes’ and it is noted that our current enquiry process is ‘relatively unique and does not promote the early resolution of issues’, so there may be major changes ahead in this area too.

The process is clearly envisaged to be a long-term project (with potentially a ten year timeline), and the next step will be more targeted consultations, so actual legislative changes, or indeed concrete proposals, are likely to be quite a way off yet.

The call for evidence runs until 13 July 2021 and explicitly states that feedback to it will inform future consultations on proposals to update the tax administration framework.

See: Call for evidence: The tax administration framework: supporting a 21st century tax system.

Practitioner comment: ‘This paper builds on the ten-year tax administration strategy published in July 2020 and restates the principle that tax administration “plays a critical role in how people experience the tax system and how much trust they place in it”. The key elements of that better administration system are that it should be simpler, easier to navigate and be more responsive to taxpayers needs. The proposed delivery mechanisms are extending MTD, improving the use of real time information, more timely payment of tax, the single digital taxpayer account and improved services for agents.
‘The key points relate to the need to build a system that is flexible and future-proof and which puts the needs of taxpayers and agents on a par with the needs of HMRC. To that end, I note particularly what is said about the potential to enhance the personal digital tax account, particularly through pre-population with information held by government and third parties. It was good to see references to the OTS report on opportunities to simplify administrative processes around claims and elections and the current OTS review examining the potential for using third-party data.
‘The report poses many questions: should we move away from existing basis periods to tax year reporting for self-employment income? Should tax be paid more frequently? Can we simplify registration and deregistration processes? The challenges are many, but the opportunities if they can be overcome them are considerable.’ ­Paul Aplin OBE, immediate past president of ICAEW and a member of HMRC’s Administrative Burdens Advisory Board
Timely payment

The government published a call for evidence on the frequency and timing of tax payments. This seeks views on the opportunities and challenges of timely payment, defined as bringing the calculation and payment of tax closer to the point where the income or profit arises, paying tax based on the taxpayer’s current year position using, where possible, up-to-date data.

The call for evidence focuses on income tax and NICs (outside of existing regular payment regimes such as PAYE) as this is the most significant example of a delay between the point of taxable income and the point of tax payment. It is not just about taxpayers within the scope of making tax digital. Taxpayers may be within income tax self-assessment for a variety of reasons, for example:

  • they are liable to pay the high income child benefit charge;
  • their income is predominantly PAYE income but they also receive investment income;
  • they are state pensioners who receive income above the personal allowance; and
  • they are PAYE taxpayers who have underpaid tax but cannot have their tax collected through their tax code.

The document also seeks to explore options for more timely payment of corporation tax by companies outside of the quarterly instalment payments regime.

The call for evidence explores the following policy questions as a means of opening dialogue on potential impacts and opportunities:

  • calculation of tax payments in-year (para 4.8–4.42), including how to deal with expenses (para 4.24–4.37);
  • timing of payments (para 4.49–4.51);
  • handling over and under-payments (para 4.52–4.55); and
  • transition to any new regime (para 4.56–4.58).

Illustrative case studies (para 5.17) outline some of the cashflow impacts that specific groups may experience.

More frequent calculation and payment could mean paying on a quarterly or monthly basis, or some other frequency. It may be appropriate for different trades, sectors, or taxpayer types (i.e. the reason they are in income tax self-assessment) to pay with different timings, although this may bring complications and challenges of its own.

The government also invites views on:

  • whether there are other taxes administered by HMRC outside income tax and corporation tax where consideration should be given to introducing more regular or frequent payment of tax in the longer term;
  • whether there are other taxes administered by HMRC outside income tax and corporation tax where consideration should be given to introducing more regular or frequent payment of tax in the longer term; and
  • whether more timely payment of capital gains tax should also be considered in the longer term.

The document recognises that many businesses are currently experiencing tough economic conditions. It states that no decisions have yet been made on changing payment timings and that any such changes would be introduced gradually, in close collaboration with stakeholders, and not within the current parliament.

The call for evidence runs until 13 July 2021.

See: Call for evidence: Timely payment.

Practitioner comment: ‘The paper on timely payment is a vision for the future, with the suggestion that tax be collected much nearer to the date the income is received by the taxpayer. It is an open consultation, ready to hear ideas and concerns about this as a long-term plan. From a fiscal point of view, the proposal to collect tax nearer to the point the taxpayer receives the funds on which the tax is due makes sense. (I remember working as a milk round assistant in the 1970s and doing a “Friday night collection run” to certain customers to collect the milk money on payday before the pubs opened!)
‘For some income sources, this will be a simple change: sources which are stable and not the main source of income for the taxpayer, such as rental income, which might be a supplement to a main income.
‘But for businesses, and income tax businesses in particular, this will prove a huge challenge. First, there will be a “catch up” payment to move from the current payment pattern to more current payment – not forgetting that this might be more than a year for taxpayers with year-ends early in the tax year – but also in calculating the liability for seasonal businesses, and collecting tax without starving the business or taxpayer of funds.
‘I look forward to the development of this subject with interest, and will be feeding my own views into the consultation.’ ­Rebecca Benneyworth, tax consultant and lecturer
Raising standards in the tax advice market: professional indemnity insurance and defining tax advice

The government published a consultation on raising standards in the tax advice market that seeks views on making professional indemnity insurance (PII) compulsory for tax advisers. This was one of the recommendations that came out of the March 2020 call for evidence. An update on the other recommendations is expected later in 2021.

Those who are subject to regulatory oversight (e.g. solicitors and financial advisers) and/or who are members of professional bodies are already required to have a minimum level of PII cover and are unlikely to be affected by this proposal. However, the government estimates that around half of unaffiliated advisers do not have PII, which represents around 15% of the tax advice market.

The government seeks views on several areas, including:

  • The mandatory requirements of the insurance cover: This could include who must hold PII (e.g. the principal in the firm, or each practising tax adviser), the minimum level of cover, the amount of the excess, the exclusions (such that if certain work is excluded from the cover the adviser would not be able to undertake this work) and the minimum number of years of run-off cover for after the business ceases (consultation document chapter 4).
  • The definition of tax advice: The government cannot mandate that all tax advisers hold PII cover without defining the term ‘tax advice’. The government appears minded to build on the existing definitions of ‘tax agent’ and ‘tax adviser’ given in the dishonest tax agent penalty legislation and money laundering regulations, but seeks views in relation to whether tax software should be within the definition and what activities should be excluded (e.g. those providing tax advice not by way of a business). Offshore tax advisers would be included if they provide UK tax advice (consultation document, chapter 5).
  • Enforcement: The government is considering how to police compliance with a mandatory PII requirement. For advisers who interact with HMRC on behalf of clients or who are supervised by HMRC for anti-money laundering, a regular HMRC check of PII cover is straightforward. It is more difficult to carry out checks for those who do not interact with HMRC (e.g. promoters and tax software providers), and the government seeks views on the best approach to this. Potential sanctions for operating without PII cover are listed, including financial penalties, suspending the adviser’s access to HMRC online services and making the adviser jointly and severally liable with the taxpayer for the tax due as a result of an error (consultation document, chapter 6).
  • Implementation: Views are sought as to whether the introduction of a mandatory PII requirement should be phased in (perhaps by size of firm) or whether this would cause too much complexity (consultation document, chapter 7).

The consultation runs until 15 June 2021.

See: Raising standards in the tax advice market.

Practitioner comment: ‘Compulsory insurance could be one of the most significant advances in tax governance since, well forever. The response of the indemnity insurers will be key, as the cost of such insurance has been steadily rising due mainly to scandalous egregious tax schemes. This increased cost is suffered only by those least at risk of being accused of negligence through misbehaviour, i.e. the professionally qualified adviser. There will be challenges of course, not least from those most affected, but the choice here seems similar to the options when choosing a new car: having gone for a sunroof, you later regret not including leather seats, and so on. Members of a professional body do not just get a sunroof, but all the other added extras including a disciplinary procedure. Compulsory insurance is a good start. The risk, however, is that in a few years HMRC will wish it also chose those leather seats.’ ­Ray McCann, past president of the CIOT and former chair of its professional standards committee
Clamping down on promoters of tax avoidance

The government has published a consultation regarding clamping down on promoters of tax avoidance, which sets out a package of additional measures that could be used to further restrict the activities of promoters and enablers of tax avoidance schemes. These new proposals build upon HMRC’s strategy to deal with promoters, which was announced at Budget 2020. An earlier consultation, Tackling promoters of tax avoidance, concluded in 2020 with the proposals being legislated for in Finance Bill 2021. HMRC has published draft technical guidance on these provisions in the latest consultation document (see Annex B and Annex C).

The key proposals of the latest consultation involve the provision of additional HMRC powers, stronger sanctions and the ability to halt the business operations used by promoters. This could be achieved via the following methods:

  • the use of new security payments or asset freezing orders which can be invoked by HMRC before promoters have the opportunity to hide their assets which would otherwise be used to settle penalties charged under the anti-avoidance regimes;
  • issuing penalties to UK entities that support offshore promoters of tax avoidance, in accordance with their level of involvement in the offshore promoter’s activities. It is proposed that the penalty is capped at the total fees earned by all those involved in the development and sale of the tax avoidance scheme;
  • where it can be demonstrated that a company involved in promoting tax avoidance is not acting in the public interest, HMRC could be given new powers to present a winding-up petition to court in order to close the company down and to disqualify the directors; and
  • providing additional information to taxpayers regarding the activities of promoters, their identity, details of the websites they use and the tax avoidance schemes they are promoting, to enable taxpayers to make more informed choices.

The proposals are not aimed at legitimate tax advisers, but rather promoters that attempt to bypass the rules in order to profit from avoidance. The government recognises the importance of achieving a balance between strict sanctions against tax avoidance and safeguarding those providing professional tax advice.

The consultation runs from 23 March 2021 to 1 June 2021 and the government’s response is expected to be published later this year.

See: Clamping down on promoters of tax avoidance.

Practitioner comment: ‘The new consultation contains some extremely tough and perhaps surprising measures. The government’s frustration that a hard core of promoters remain who have found ways to sidestep existing measures is clear.
‘The proposals, very much like HMRC’s approach to offshore tax evasion effectively take the form of “no safe havens” and leave no stone unturned in ensuring that the ability for promoters to ply their trade is largely diminished. The key messages are around “risk” and deterrents, and many of the proposals will be resource-heavy for HMRC to implement. I therefore suspect that HMRC hopes the deterrent element means there will be a limited number of occasions where an action such as closing down a company will need to be taken.
‘The key proposals for me relate to HMRC’s efforts to deter taxpayers from getting caught up in tax avoidance schemes in the first place and making early contact with those that have. Early naming of promoters, the websites they use and the schemes they promote to warm taxpayers about the risks is arguably one of the easier measures to implement but also one that could be highly effective. Without willing customers the promoters would have no business. HMRC has recognised that accessibility to information about tax avoidance schemes is key. Having historically largely relied on highlighting issues on its website, HMRC recognise its limitations in terms of accessibility and the proposed use of social media platforms is a refreshing approach.’ ­Lisa Vanderheide, tax director, Stewarts
Preventing and collecting international tax debt

The government published a discussion paper seeking views on the best way to prevent international tax debt, as well as how best to collect the debt which does occur. This initiative follows on from the government’s offshore tax compliance strategy, No safe havens, published at Spring Statement 2019. It is also a key element of the government’s ten-year tax administration strategy entitled Building a trusted, modern tax administration system, published in July 2020.

In the discussion paper, the term ‘international tax debt’ is used to refer to a debt which has arisen because of the non-payment of UK tax, where either the taxpayer, their assets, or both, are outside of the UK. It can therefore apply to the following persons:

  • UK tax resident individuals with overseas assets that generate a UK tax liability;
  • individuals based overseas with a UK source tax liability; and
  • UK tax resident individuals who have moved overseas without paying the tax owed.

HMRC is seeking the views of interested parties on the following:

  • the causes of international tax debt;
  • preventing international tax debt through the development, collection and use of data collected under initiatives such as the CRS and the draft Registration of Overseas Entities Bill, published in July 2018;
  • what guidance and formats are most helpful to reduce international tax debt;
  • making the payment of tax easier; and
  • improving the collection of international tax debt.

The discussion paper runs until 15 June 2021.

See: Discussion document: Preventing and collecting international tax debt.

Offshore tax

The government has published a discussion document on how HMRC can help taxpayers with offshore income or gains to get their offshore tax right first time. The document does not deal with deliberate non-compliance.

The document focuses on the following three ways that HMRC might promote compliance by UK-resident taxpayers in respect of their non-UK income and gains:

  • How could HMRC use data in different ways to help taxpayers? HMRC collects information under various international data sharing agreements, such as the common reporting standard (CRS), and this could be used, for example, to remind taxpayers when HMRC sends a notice to file a tax return that they have assets or income overseas or by way of online prompts to remind taxpayers as they complete their return to declare income and gains from assets which HMRC knows they hold.
  • How could HMRC better support taxpayers with offshore tax obligations? This looks at HMRC guidance, education and communications. It considers possible communication approaches such as highlighting common mistakes, targeted awareness aimed at particular jurisdictions or sectors, a one stop shop for offshore guidance and increasing awareness of anti-avoidance legislation. There is also a section on the best approach to communicating with non-UK residents with UK tax obligations and in particular making sure that information about new rules reaches the right taxpayers.
  • How could HMRC work with agents and other intermediaries to help promote offshore tax compliance by taxpayers? HMRC is considering the viability of sharing the international data it holds with agents in advance of tax returns being submitted. It is also considering opportunities for increased engagement with agents, for example through community forums. The final part of this section seeks ideas on the possibility of the financial sector providing support to their customers by way of encouraging best practice or providing guidance and education.

The document also includes the possibility of expanding the information that taxpayers are required to include in their tax returns to enable HMRC to match up the data it receives with the information on the return. The example given is of details of each offshore bank account held. HMRC says that the lack of these details currently can make it difficult to quickly confirm whether all taxable income has been declared, particularly where HMRC has data for a calendar year which could relate to either of two UK tax years.

The discussion will be open for responses until 15 June 2021 and is expected to be followed by formal consultation on measures that are identified.

See: Discussion document: Helping taxpayers get offshore tax right.

Practitioner comment: ‘This is a continuation of HMRC’s “no safe havens” strategy launched in 2019 and looks for new ways to use the vast data collected under FATCA and CRS. It appears the current approaches are tackling only part of the problem of offshore tax non-compliance. There is an obvious desire from HMRC to reduce the “tax gap” and raise revenue here. HMRC’s strategy of mass education letters and batches of “nudge” letters is not without criticism. In practice, the letters are indiscriminate, and nudges using CRS data are sent equally to taxpayers who are fully UK tax compliant. The current approach is skewed towards UK taxpayers already in self-assessment who make innocent or careless errors. Many will ask what more HMRC can do to address hardened tax evaders, who ignore all prompts and simply need to be caught. Involving tax agents and intermediaries in doing what many see as HMRC’s work will spark further debate. There is a link to MTD and using digital prompts for taxpayers and agents through online filing. The thorny issue of balancing information sharing with data security and taxpayer safeguards will once again need careful consideration.’ Dawn Register, partner, BDO
Office of Tax Simplification

As required by FA 2016, HM Treasury will conduct a review of the effectiveness of the Office of Tax Simplification in its role as independent adviser to the chancellor on simplifying the tax system.

The review’s terms of reference state that the government is committed to supporting the OTS and that, for this reason, the review will not only examine the effectiveness of the OTS in advising the chancellor on tax simplification, it will also consider what further steps should be taken to enhance the effectiveness of the OTS in future.

The review is to an internal matter, conducted by HM Treasury, but the department will engage with interested stakeholders, including individuals, businesses, tax professionals and academia. It will also draw on the input of an advisory panel containing independent, external members.

The review’s outcomes will be published in Autumn 2021.

See: 2021 Review of the Office of Tax Simplification: terms of reference.

Practitioner comment: ‘The OTS has evolved from its original, informal, roots to being a statutory body which is beginning to produce reports in more controversial areas, particularly its recent report on the future of CGT (with a second instalment expected later this spring). Key questions for the review should, in my view, include whether the OTS is sufficiently independent, and whether it is properly resourced. It is interesting that the OTS has the equivalent of 9.5 full time equivalent staff, plus the tax director for three days a week, in contrast to the Office for Budget Responsibility which has a permanent staff of 36 civil servants supporting the three person Budget.’ ­Heather Self, partner, Blick Rothenberg

Other publications and future developments

Calls for evidence and consultation responses

The following calls for evidence and consultation responses were also published on 23 March 2021:

  • Exploring the costs and benefits of making tax digital for VAT experienced by small businesses: Research into how making tax digital for VAT has affected costs and benefits for businesses. See: Exploring the costs and benefits of making tax digital for VAT experienced by smaller businesses.
  • Exploring voluntary sign-up to making tax digital for VAT: Research into why businesses below the VAT threshold signed up to MTDl voluntarily. See: Exploring voluntary sign-up to making tax digital for VAT.
  • Business rates review: interim report: An overview of responses to the HM Treasury Fundamental review of business rates: call for evidence, a final report will be published in Autumn 2021. See: Business rates review: interim report.
  • VAT grouping establishment, eligibility, and registration: A summary of responses to a call for evidence on VAT grouping will be published before the summer. Notably, it was also confirmed in advance of its publication that the government has decided not to take this matter any further.
  • VAT and value shifting: A summary of responses to the 2021 consultation will be published in the summer. Subject to the outcome of the consultation, the government expects to prepare new rules for introduction and will provide an update, with next steps, later in the year.
  • VAT and public sector refunds: The government will publish a summary of responses before the summer on the August 2020 policy paper.
  • Business rates on self-catering accommodation: The government will publish a summary of responses to the 2020 consultation shortly, which will confirm details of the proposed legislative change to the criteria for determining whether a property is valued for business rates.
  • Hidden economy conditionality: Northern Ireland and Scotland: As announced at Budget 2021, the government is consulting (until 5 July 2021) on how to make the renewal of certain licences in Scotland and Northern Ireland conditional on applicants completing checks that confirm they are appropriately registered for tax from April 2023. Equivalent reforms, introduced in FB 2021, come into force in England and Wales in April 2022. See: Hidden economy conditionality – Northern Ireland and Scotland.
  • Sanctions on illicit tobacco: The government will publish a summary of responses to the 2020 consultation in the summer and draft legislation at ‘legislation day’ for inclusion in Finance Bill 2021/22.
  • Carbon emissions tax: The government has published the summary of responses to its consultation on the carbon emissions tax (which closed in September 2020). The tax is not being taken forward in light of the announcement in December 2020 that the UK would be implementing a UK emissions trading system from 1 January 2021 to replace its participation in the EU emissions trading system. See: Carbon emissions tax.
Practitioner comment: ‘It was disappointing that the only environmental tax documents were a response on carbon emissions tax (CET) and a consultation on tinkering with the bands for air passenger duty. The CET response is largely academic as the government introduced a UK emissions trading system (mirroring the EU system) instead of a CET when the UK came out of the EU system at the end of 2020. The section in the consultation response addressing possible future changes had the prospect of being the most interesting but reveals nothing about future government policy. Unsurprisingly, the aviation and shipping industries objected to extensions to those sectors, whereas green groups favoured widening the tax base and there was support for tax incentives for negative emissions technologies. With just over seven months until COP26, it is becoming increasingly urgent for the government to publish the clear roadmap on environmental taxes that businesses need.’ Catherine Robins, partner, Pinsent Masons
Other analyses and reports
  • Effects of the off-payroll working reforms on agencies: This report explores the effects that the 2017 and 2021 off-payroll IR35 reforms have had on employment agencies. Many agencies saw contractors shift away from PSCs towards alternative methods of engagement because of the 2017 off-payroll IR35 reform, specifically towards the payroll of agencies and umbrella companies. All agencies had taken steps to prepare for the 2021 reform, with most agencies reporting there had not, as at January 2021, been any impact as a direct result of the imminent April 2021 off-payroll IR35 reform. However, some agencies reported early signs of contractor numbers decreasing, and the number of contractors using PSCs also decline. See: Effects of the off-payroll working reforms on employment agencies.
  • Long-term effects of the off-payroll working reform: education sites interim report: This report was originally intended to cover findings from public authorities across education, health and social work, and public administration and defence. However, in order to allow public sector organisations to focus on the coronavirus (covid-19) pandemic, the 2020 study was paused, with only findings from the education sector provided on 23 March 2021. The findings are that the 2017 off-payroll IR35 reform had very little impact on education sites over the longer-term, with little indication overall that sites are reducing their engagement with PSCs as a result of the reform. See: Effects of the off-payroll working reform: education report.
Future developments

The command paper details a number of further documents that will be published over the coming months:

  • VAT land and property exemption: The government will publish a call for evidence shortly to consider options for making the exemption simpler and clearer.
  • Residential property developer tax: Following the announcement in February 2021, the government will consult in the coming months on a new property developer tax to be introduced in 2022 to helpful pay for the costs of cladding remediation.
  • Structure and buildings allowances: The government will introduce technical amendments to the allowance statement requirements to include the date qualifying expenditure is treated as incurred when the allowance period commences from this date (no date is given for these changes).
  • Dormant assets scheme expansion: The government will make changes in a future Finance Bill to expand the asset groups that can be included in the scheme.
  • Pensions tax technical changes: The government will make a series of technical changes to the pensions tax regime to ensure that it works as intended (no time frame is given for this).
  • Pensions superfunds: The government will review the taxation framework for pensions superfunds (consolidation vehicles for defined benefit pension schemes) alongside the regulatory framework that is being established. The government notes that it is not to be assumed that the regime will match the current tax regime (not time frame is given).
  • Landfill tax: The government will review aspects of landfill tax in England and Northern Ireland to ensure it continues to support the government’s environmental objectives.

Report by the tax teams at Tolley and Lexis PSL®Tax, with additional practitioner comment.

Issue: 1525
Categories: Analysis