We all heard the announcements made in the 2021 Budget on 3 March 2021. But did you know that HM Treasury published more than 30 tax policy announcements and documents? These Tax Day announcements were made less than 3 weeks later. No changes will be implemented in this Parliament, but it this is as close as we get to having a tax crystal ball.
Timely payment of taxes
In our view the most interesting (worrying?) announcement concerns the timing of tax payments. HMRC are seeking views on bringing the payment of both income tax and corporation tax forward. The intent is for payments to be made closer to the point when the income is generated, instead of many months later.
It is also possible that taxpayers not registered for Making Tax Digital for Income Tax Self Assessment may have to provide information to HMRC more frequently. Alternatively payments could be made based on HMRC estimates, which doesn’t sound appealing!
This very much calls into question the official denial that the quarterly updates required under Making Tax Digital will lead to paying taxes earlier. This will have a significant impact on the cash flow of many small businesses. We will be keeping a close eye as further announcements are made.
Tax administration framework
We all know that tax isn’t mean to be taxing. Even though our day job means we have a better understanding than most we would be the first to agree that the current framework is very complicated! This covers taxpayer obligations and the calculation of tax liabilities. They are also looking at using data to improve tax compliance and verification methods.
The Government wants to build a trusted, modern tax system that is simpler and easier to navigate. This is a mammoth undertaking! £95 million was allocated to HMRC in the Budget which will be used to deliver new digital technology. Plans include developing a single digital account and a single customer record. These will bring together personal and business tax accounts and data held on different HMRC databases.
What were the other Tax Day announcements?
- Draft guidance on tackling promoters of tax avoidance as well as helping taxpayers get offshore tax right, preventing and collecting international debt, and the outcome of the consultation on disguised remuneration.
- A consultation on potential changes to Air Passenger Duty and cutting tax on domestic flights. It also covers the UK’s commitment to net zero carbon emissions by 2050 by increasing the number of international distance bands. This would mean those who travel the furthest incur the most duty to cover the greater impact on the environment.
- An interim report on the Government’s Fundamental Review of Business Rates. It is hoped this will lead to meaningful reform of the business rates system to help people understand their rates bills and to challenge them easily if they are wrong.
- The Government will be legislating to toughen criteria for holiday homes to qualify for business rates. They want to ensure that owners of properties that are not genuine holiday lets will not be able to reduce their tax liability by declaring that a property is available while making little or no effort to actually let it out.
- Inheritance tax red tape has been cut for more than 200,000 estates each year. Over 90% of non-taxpaying estates each year will no longer have to complete inheritance tax forms when probate or confirmation is required from 1 January 2022.
Why do we need an updated tax system?
It is hoped that the new system will raise standards. One possibility being looked at is the requirement for tax advisers to hold professional indemnity insurance (PII). We have to hold PII already, it feels like a no brainer that this should be required across our industry.
Critically any new system needs to be easier for taxpayers to navigate. Tax is a fundamentally stressful area at the best of times. Anything that makes it easier to deal with has to be a good thing.
Does this affect me?
The short answer is not yet! None of the Tax Day announcements will be legislated in the current Finance Bill. However, these announcements are indications of what is coming in the future. Sign up for our newsletter if you would like to be kept informed of future changes.