30 November 2021 was the first Tax Administration and Maintenance Day. The Government has published consultations and calls for evidence in a range of tax administration and tax policy areas.
Importantly for CTG members, the Government has published a response to the consultation on MTD for Corporation Tax, as well as the consultation on VAT land and property. There are also relevant updates on business rates and R&D Tax Relief.
This ‘Tax Maintenance and Administration’ command paper builds on the approach the Government took in March of publishing a series of consultations and tax policy updates following on from the Spring Budget, on Tax Day. According to the Government, this document will help Parliamentarians and wider stakeholders to better scrutinise tax policy, leading to improved policy outcomes for the UK public and taxpayers.
Relevant announcements for charities are listed below:
- Making Tax Digital for Corporation Tax (MTD for CT): The Government is publishing a summary of responses to the consultation on the potential design of Making Tax Digital for Corporation Tax. The Government is committed to ongoing collaboration with stakeholders on the service design and following any decision to mandate MTD for CT, will provide sufficient notice ahead of implementation.
While CTG had hoped for a full exemption for charities (see our consultation response here) the Government has confirmed that it “would prefer the sector to be within the scope of MTD”. However, in response to the extensive contributions from the sector, spearheaded by CTG, the Government has recognised the difficulties that charities would face under the current proposals. This shows the value of a united and forceful response to the consultation.
“HMRC has had discussions with the stakeholders representing the charity sector, in particular smaller charities, sports clubs and not-for-profit organisations. The Government is open to exploring a more bespoke design for these entities that reflects their specific circumstances.”
This will likely mean no need for quarterly reporting and perhaps other concessions, but this will need further negotiation, in which CTG will play an active role. Importantly, there is also a firm commitment to review the CT600E form.
- Tax Administration Framework Review: The Government is publishing a summary of responses to the call for evidence on modernising the tax administration framework, covering the core legislation, processes and guidance that underpin obligations for HMRC, taxpayers, agents, and third parties. The Government is committed to incremental long-term reform to support effective tax administration in the 21st century. It will set out a roadmap for future consultation in due course. CTG’s response to the consultation can be read here.
- Simplifying VAT on land and property: The Government is publishing a summary of responses to the call for evidence on the land and property VAT exemption that closed in August 2021. It sets out the Government’s response, including improving guidance in this area of VAT and how the government will further engage with the sector on potential options for reform. CTG’s response to the consultation can be read here and we will issue further comment once the Government response has been reviewed by our VAT Technical and VAT Expert Groups.
After analysing the responses to the call for evidence, the Government does not intend to take any further action regarding any of the potential options previously discounted by the OTS. The Government agrees with the OTS and respondents that these options would likely be ineffective in reducing complexity overall. The Government also agrees with respondents that the potential option of linking the VAT treatment to an independent land register would be ineffective, and probably inoperable, and will therefore not be considering this further.
HMRC acknowledge that guidance could be significantly improved and has set up a working group with members of the Land and Property Liaison Group with the aim of producing guidance for HMRC compliance officers that will also provide certainty for businesses.
HMRC recognises that any significant changes to the VAT rules would require considerable further consultation and sufficient lead in times and transitional rules. HMRC also acknowledge that there are potentially unknown consequences to each potential option that they would need to explore further. A number of respondents expressed an interest in discussing further the implications of certain proposals, and HMRC intends to explore these with relevant stakeholders on that basis. In particular, HMRC would like to explore further whether it is possible to establish a workable definition of “short term” or “minor interests” with a view to making such supplies subject to VAT. If establishing such a definition is possible, HMRC would like to discuss further the implications of making such a change.
Likewise, the Government would like to discuss further the implications of making most supplies of land subject to VAT with a limited number of exceptions. This is by far the most significant change of the potential options. However, it would also be the most challenging to develop and introduce in the short to medium term, and the Government would like to understand more fully these challenges and any unintended consequences before making any decisions. At this point, no decisions have been made as to which option, if any, will be taken further. As part of the continued engagement, HMRC may also look to discuss other suggestions raised by respondents. These included the request for HMRC to establish a more comprehensive and accessible register of existing options to tax and reviewing the anti- avoidance rules relating to the option to tax. Further discussions with businesses are intended to begin in the early part
- Increasing the effectiveness of the Office of Tax Simplification (OTS): The Government is publishing its first five-year review of the OTS, launched in March 2021, to examine the effectiveness of the OTS. It makes eight recommendations including asking the OTS to:
- Expose their reasoning behind their recommendations, particularly where there are trade-offs between simplification and other policy objectives that government must consider
- More clearly prioritise those recommendations which the OTS considers of most value to taxpayers
- Maintain and expand the breadth and balance of knowledge, experience and expertise within the Secretariat, while also seeking professional expertise in how it consults externally
- Consider the volume and type of output it produces, and focuses more on activities that build its preliminary evidence base and embed its work; and,
- Clarify its aims and objectives in light of its articulation of how it interprets ‘tax simplification’, using this to inform which areas it will prioritise over the next five year period to maximise its impact.
- Income Tax Self Assessment registration for the self-employed and landlords: The Government is publishing a call for evidence exploring the case for reforming registration for Income Tax Self Assessment for the self-employed and landlords. Earlier registration could benefit taxpayers by ensuring they understand their tax obligations, and can receive support if they need it, earlier. The deadline for responses will be 22 February 2022.
- Timing of tax payments: The Government is publishing a summary of responses to the call for evidence on timely payment of tax, which looked at the opportunities and challenges of more frequent payment under Income Tax Self Assessment, and for Corporation Tax for small companies. No changes will be made to payment timings within this Parliament. To mitigate some of the challenges brought out in the call for evidence, HMRC will conduct a pilot, developed in close collaboration with external stakeholders, to test the calculation of tax liability in-year.
- Raising standards in the tax advice market: The Government is publishing a summary of responses to the consultation on ‘Raising standards in the tax advice market: professional indemnity insurance and defining tax advice’, as well as external research on the characteristics of tax agents who are not affiliated to tax professional bodies. The Government will not make professional indemnity insurance for tax advisers compulsory at this time, but remains committed to raising standards in the tax advice market – and will consult on further options, and on proposals to tackle the high cost to taxpayers of using tax agents to claim tax repayments.
- Helping large businesses get their tax right and improving the compliance experience: At Spring Budget 2021 the Government announced a review of tax administration for large businesses, in recognition of the role that the tax administration plays in supporting the UK’s competitiveness and promoting investment. Following engagement with stakeholders, the government is taking action, including: developing new Guidelines for Compliance and improved guidance; changes to help address long-running enquiries; and work to improve the co-operative compliance experience. Read more here.
- Administering low-income trusts and estates: The Government will formalise an existing interim concession that removes trustees and personal representatives from income tax where the only source of income is savings interest and the tax liability is less than £100. The precise form and level of the change will be confirmed following consultation by HMRC.
- Response to Office of Tax Simplification Review of Capital Gains Tax (CGT): The Government is publishing its response to the OTS’s two-part review of CGT. The Government has carefully considered the OTS’s recommendations and will keep the CGT system under review to ensure it is simple and efficient. The Government has accepted five of the technical recommendations in the OTS’s second report and will work towards their implementation.
- Response to Office of Tax Simplification Review of Inheritance Tax (IHT): The Government is publishing its response to the OTS’s review of the design of IHT. It has decided not to proceed with any changes at this point in time. The Government responded to the OTS’s review of the administration of IHT in March 2021.
- Modernising tax debt collection for non-paying businesses: The Government is publishing a call for evidence on how HMRC can modernise its collection of tax debts to reflect the changing nature of the economy, where an increased use of e-commerce has given rise to new business practices – including the conduct of business in the UK without having a presence or physical assets here. The call for evidence also seeks views on HMRC’s approach to the small minority of business taxpayers who do not engage with HMRC and hold off paying their tax for as long as they can, forcing HMRC to resort to costly and time-consuming enforcement action. The proposals will not affect taxpayers who are in temporary financial difficulty and need support from HMRC to get back onto a sustainable financial footing – including those affected by the Covid-19 pandemic. The consultation will close on 22 February 2021.
- OECD’s Model Mandatory Disclosure Rules to tackle non-compliance: At Spring Budget 2021, the Government announced that it would implement the OECD’s Model Mandatory Disclosure Rules. The Government is now issuing a technical consultation and draft regulations. Mandatory Disclosure Rules require advisers (and sometimes taxpayers) to report information to the tax authorities on certain prescribed arrangements and structures, including those that could circumvent existing tax transparency reporting rules known as the Common Reporting Standard. This information will be exchanged with relevant tax authorities to help deter non-compliance, assist in identifying and challenging evasion, and support the development of tax policy. The consultation will close on 8 February 2021.
- Improving Transfer Pricing Documentation: The government is publishing a summary of responses to the consultation that closed in June 2021. It will legislate in 2022 to require businesses that are in scope of country-by-country reporting to maintain a master file and local file in line with OECD Base Erosion and Profit Shifting Action 13, and a supporting summary audit trail. These changes will take effect from April 2023. The government will continue to review the case for companies to submit an International Dealings Schedule.
- Consulting on making Stamp Duty Land Tax (SDLT) reliefs fairer: The Government is publishing a consultation on the SDLT reliefs for purchases of mixed property and multiple dwellings. These reliefs are being exploited by some purchasers to unfairly reduce their tax liability. This consultation sets out potential changes to make the system fairer and reduce the scope for misuse and incorrect claims. The consultation will close on 22 February 2022.
- New stakeholder forum on tackling offshore tax non-compliance: The Government has established an HMRC stakeholder forum with representative bodies and agents to explore ideas to tackle offshore tax non-compliance.
- Exploring the potential of VAT split payment: The Government is committed to exploring further VAT split payment, an alternative method of VAT collection where the tax element of a digital payment could be remitted directly to HMRC. While the work is at an exploratory stage, the government will continue to assess the potential of split payment both for tackling overseas VAT non-compliance and wider tax modernisation. The Government is grateful for the ongoing input of stakeholders in the payments industry and will continue to take this work forward collaboratively, including through the Industry Working Group established in 2018.
- Use of marketed tax avoidance schemes in the UK: HMRC is publishing its annual report on the use of marketed tax avoidance schemes in the UK. It sets out the numbers and characteristics of taxpayers using avoidance schemes in the tax year 2019-2020. The report includes data on occupations, locations, ages and the average declared incomes of those involved in avoidance.
Taxes fit for the modern world
- Delivering Budget commitments on business rates: The Government is launching a technical consultation on business rates reform. This consultation sets out detailed proposals for delivery of a number of the commitments in the final report for the business rates review. It focuses on the move to a more timely and transparent system of three-yearly revaluations, and sets out further technical detail on measures to facilitate this, as announced at Autumn Budget 2021. The consultation also set outs further detail on the new improvement relief and changes to support investment in green plant and machinery, and several administrative changes. The consultation will close on 22 February 2022.
- Publishing a consultation on an online sales tax: As announced at Autumn Budget 2021, the Government continues to explore the arguments for and against a UK-wide online sales tax. Any revenue raised would be used to reduce business rates for retailers with properties in England, with the block grants of the Devolved Administrations increased in the usual way. A consultation on this will be published in the new year.
- Reforming Research and Development (R&D) tax reliefs: The Government is publishing a report on the review of R&D tax reliefs. At Autumn Budget 2021, the Government announced that R&D tax reliefs would be reformed to support modern research methods by expanding qualifying expenditure to include data and cloud costs; to capture more effectively the benefits of R&D funded by the reliefs, through refocusing support towards innovation in the UK; and to target abuse and improve compliance. This document provides further detail and next steps for the review. It also includes a summary of responses received to the consultation published at Spring Budget 2021. CTG’s response to the consultation can be read here – unfortunately the Government has failed to take the opportunity to undertake a wider review of the tax treatment of charity funded R&D.
- Customer experience in claiming R&D tax reliefs: As part of the R&D review announced at Spring Budget 2021, the Government commissioned an independent research organisation to conduct research into customer experiences of preparing and submitting claims for R&D tax reliefs (R&D Expenditure Credit and the Small and Medium Enterprises scheme). The research explored companies’ behaviours and decision-making processes when preparing R&D tax relief claims. The Government is publishing the findings of this research.
- Improving the administration and operation of Insurance Premium Tax (IPT): The Government is publishing a summary of responses to the consultation on IPT. Following the consultation, the government plans to engage with the insurance industry to explore appropriate public access to a 10 register of insurers registered to pay IPT, alongside a code of conduct for brokers.
- Ensuring Landfill Tax continues to support environmental objectives: In spring 2021, the Government announced it would review aspects of Landfill Tax in England and Northern Ireland. It is now launching a call for evidence, focused on how Landfill Tax can continue to support the Government’s environmental objectives, including achieving zero avoidable waste by 2050. The consultation will close on 22 February 2022.
- Modernising Aggregates Levy exemptions: The Government is publishing a summary of responses to the consultation on the tax treatment of aggregate removed during construction works. In light of these responses, the Government proposes to legislate in a future Finance Bill so that the exclusion from the Levy for aggregate that is returned to the land at the site where it was won applies only for a purpose connected to the winning of aggregate. The Government will also examine the feasibility of consolidating several exemptions from the Levy into one for unavoidable by-product aggregate extracted as part of a construction project.
- Allowing UK securitisations and insurance-linked securities arrangements to operate more effectively: The Government is publishing a summary of responses to the consultation on the reform of taxation of securitisations and insurance-linked securities which closed in June 2021. The consultation process identified several areas where the tax rules should be updated to reflect developments in the current market. The government is publishing draft legislation to make these changes.
- Supporting the delivery of deposit return schemes: In order to ensure that new drinks deposit return schemes being introduced across the UK operate effectively, the Government will explore and make any necessary legislative changes to the VAT regulations.
- Helping to mitigate the tax and Exchequer impacts of accountancy changes for insurance contracts: Following the Autumn Budget 2021 announcement that the Government is taking a power to spread the transitional impact of the new international financial reporting standard IFRS17 for corporation tax purposes, a consultation on next steps is being published. This will inform the design of secondary legislation. It will also cover removing the requirement for life insurance companies to spread acquisition expenses over seven years for tax purposes.
- Call for evidence on the umbrella company market: The Government is publishing a call for evidence to ensure it has an up-to-date and well-informed view of how the umbrella company market operates. The call for evidence invites views from stakeholders on the role that umbrella companies play in the labour market, and how they interact with the tax and employment rights systems. It sets out the concerns that have been raised by some stakeholders, as well as government action already taken to tackle tax non-compliance and improve protection for workers. The consultation will close on 22 February 2022.
- Exploring potential VAT challenges posed by the sharing economy: Following the publication of a call for evidence and summary of responses earlier this year, the Government continues to work with stakeholders both in industry and at the OECD to develop its understanding of the sharing economy and its implications for VAT. Specifically, the government is conducting further engagement with stakeholders on the VAT rules for crossborder services supplied between businesses, as well as the possibilities offered by increased data sharing and how such sharing or reporting would be best achieved. The Government recognises the opportunities and value created by the sharing economy, while remaining committed to protecting the tax base.
- Increasing transparency on tax reliefs: The Government is publishing a list of the objectives of non-structural tax reliefs. This is in response to a commitment made to the Public Accounts Committee in 2020.