Stuart Wilkinson, Head of Tax at EY in the East of England, comments: “Tax Policies and Consultations Day represents a welcome innovation in the UK’s well-regarded tax policy making process. Releasing a suite of forward-looking consultation documents on a single day, the date of which is announced in advance, reinforces the importance that the Government rightly places on meaningful engagement with taxpayers on tax matters and will help to ensure that its policy making objectives are met.
Tax Day: EY comments on the release of Tax Policies and Consultations documents
“Consultation is an essential part of the UK’s tax policy making process. The issuance of such forward-looking consultations on Budget Day risked important matters of tax policy being overlooked due to the attention rightly given to immediate Budget matters. Similarly, the sporadic issuance of consultations after the Budget risked those consultations being drowned out. By consolidating these types of consultation into one day, sufficiently distinct from the Budget, these policies will be far more visible and it will be easier for taxpayers to engage in the policy dialogue.”
Commenting on the policies and consultations announced today, Stuart adds:
Business Rates – Interim Report
“In publishing the Interim Report on the Business Rates Review, the Government ostensibly did what it said it would do, namely to report what it had heard rather than to set out its position. However, listening to someone recount what they have heard often provides insights into their perspective and this may well be true of the 29-page document.
“Many will turn quickly to the discussion of the potential for an Online Sales Tax (OST). Here the government points to “several respondents” in support of ringfencing revenue from OST to “go towards business rates” and how “a sizeable minority suggested that an OST may help to … rejuvenate the high street and … re-establish tourism and communities.” Combined with noting that “a large majority of respondents” were in favour of excluding click & collect and that “some respondents” noted that “sales of travel, accommodation, and software which previously would have occurred on the hight street should be in scope”, the document provides some pretty clear hints as to how the Government might look to develop any such tax.
“Of course, the question not answered yet is whether the government will develop such a tax. For that, we are told to wait until the Autumn Budget.”
Uncertain Tax Treatment
Today HMRC published a second consultation regarding the proposed new requirement for large businesses to notify it of “uncertain tax treatments”, which was originally announced at Budget 2020. There were widespread concerns amongst businesses and other stakeholders about scope of the original proposals and the administrative burden which they would have placed on businesses. In response to this, HMRC announced in November 2020 that implementation of the regime would be deferred to April 2022, and that certain aspects of the proposal would be reconsidered. The new consultation document published today sets the amended proposal, and highlights a number of key aspects on which further comments are sought.
Commenting on this, Stuart said: “The changes we saw in today's announcement – such as restricting to the critical taxes and increasing the reporting threshold - show that HMRC has been actively listening to the concerns raised. In particular, HMRC has responded to concerns raised about the subjective nature of the definition of uncertain tax treatments, providing a more objective test.
“An intervention of this nature needs to target the areas of concern and militate against adding further burden onto compliant taxpayers. In this respect, the re-affirmation that taxpayers will not have to report items which they have already discussed with HMRC is welcome, though there remain practical issues to resolve. The 10-week consultation period will allow time for further engagement, to give businesses and stakeholders the further chance to work with HMRC on the implementation of the policy so that these provisions provide the information government needs with the least amount of disruption to taxpayers.
Tax Administration Framework
“With what might be today’s least eye-catching title, the government launches a call for evidence in relation to the “tax administration framework”. However, this may well be as impactful as all the others in terms of changes to the future of tax in the UK. This document looks at “all the legislation relating to how HMRC collects revenue and makes payments”. The document acknowledges that this “provides the framework that support all of the taxes and duties that HMRC administers”.
“In this latest instalment from Jesse Norman, the Financial Secretary, we have a fundamental review of the plumbing of the tax system. This isn’t just about fixing pipes that are leaking but potentially introducing a whole new system, with new pipes that bypass the blockages of the past.
“The call for evidence looks at the possibility of introducing new obligations to register for tax, as well as asking fundamental questions such as what a ‘tax return’ looks like in a digital system. Combined with changing when tax is due for the self-employed and personal service companies, the consultation on the mechanics could significantly change the way many people experience the tax system today.
“The Financial Secretary’s document helpfully seeks to bring together the vast range of changes into one place. This may well achieve the administrator’s aim of making the tax system less taxing, but it can also be expected to ensure that the tax system generates more tax earlier. A virtuous circle?”
Office of Tax Simplification (OTS) reports (plus OTS review plus Taxation of Trusts review):
Stuart added: “There may well be disappointment from taxpayers today regarding the limited number of documents published in relation to the Office of Tax Simplification (OTS) reports. While it was anticipated we might see the Government’s response to an array of reports that the OTS have produced over the past 18 months – including potential changes to Inheritance Tax and Capital Gains Tax – the only response received was in relation to changes to the administration of Inheritance Tax (IHT). This document confirmed that over 90% of non-IHT paying estates would no longer be required to file IHT forms and where forms were required, physical signatures should not be required from all parties involved.
“The Chancellor’s letter did suggest the Treasury were still considering the more far-reaching considerations set out in the second report on IHT from the OTS. There was no mention of a response in relation to the Capital Gains Tax report that was released in the autumn 2020.
“The Government did, however, find time to announce an HMT review of the effectiveness of the OTS and how well it had done in meeting its making tax ‘simpler and easier’ purpose over the past decade since it was formed. There was also a consideration as to how it might be made more effective going forwards with this expected to report in autumn 2021. Similar certainty over when the IHT and CGT responses would be published would no doubt be welcomed.
“The Government also finally responded twenty-four months after the consultation of the taxation of trusts closed in February 2019, to confirm that there was no desire from respondents for a comprehensive review of trusts at this time but would keep the various matters (transparency, fairness and neutrality and simplicity) under review and make amendments on a case-by-case basis.”
Off-payroll working rules
Commenting, Stuart said: "The Government has published the findings of external research into the impact of the 2017 reforms to the off-payroll working rules on employment agencies and the education sector, ahead of the extension of the rules to medium and large sized businesses in the private and voluntary sectors from April 2021. It is apparent from the research that for a number of employment agencies, many contractors had remained on their books, but had shifted away from using Personal Service Companies (PSCs), instead gravitating towards the payroll of agencies and umbrella companies. For those contractors moving away from PSCs, a number of employment agencies had also witnessed contractors seeking increases in rates paid, to compensate for income tax and National Insurance deducted at source under the new arrangements. For the education sector the research suggests it has been very much ‘business as usual,’ with there being little or no impact for those organisations engaging with PSCs."
Timely Payment and Making Tax Digital
The Chancellor also announced that the Government would be calling for evidence to begin exploring the opportunities and challenges of more frequent payment of income tax within Income Tax Self Assessment, and of corporation tax for small companies, based on in-year information.
Stuart commented: "This shows that, together with the confirmation that the Government will legislate to extend Making Tax Digital to Income Tax Self Assessment from April 2023, the Government is aiming to move towards their ambition of near real-time collection of income tax and corporate tax for small companies through a digital tax system. The consultation is initially focused upon income tax and national insurance contributions for self-employed individuals but may in time be extended to cover more timely payment of capital gains tax by individuals too, whereas for small companies this would include CT on total profits (including any capital gains which are subject to corporation tax).”
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