Treasury releases tax policy announcements

The Treasury has released a slew of responses to recent consultations, changes to tax policy implementation deadlines, and announced new consultations, including one on Making Tax Digital for corporation tax

In a written statement to the House of Commons Jesse Norman, financial secretary to the Treasury, said the Government was publishing responses to a number of consultations on tax policies announced at Spring Budget 2020, some of which were extended due to Covid-19, plus draft legislation. 

Previously announced publications

Plastic Packaging Tax – this new tax applies to plastic packaging produced in, or imported into, the UK, that does not contain at least 30% recycled plastic. Details here.

Tackling Construction Industry Scheme abuse – the Government will legislate to provide for a power to enable HMRC to amend the effect of certain construction industry scheme (CIS) deduction claims on employer returns; make changes to the current rules on the cost of materials and deemed contractors; and expand the scope of the CIS false registration penalty. Details here.

R&D SME tax credit PAYE cap – the Government has confirmed the design of the PAYE cap. A company making a small claim for payable credit below £20,000 will not be affected by the cap. A company will be able to include related party PAYE and NIC liabilities attributable to the R&D project when calculating the cap and these will be subject to the 300% multiplier. A company’s claim will be uncapped, if it meets two tests.

These tests require that a company’s employees are creating, preparing to create or actively managing intellectual property (IP) and that its expenditure on work subcontracted to, or EPWs provided by, a related party is less than 15% of its overall R&D expenditure. Details here.

Tax implications of the withdrawal of the London Inter-Bank Offered Rate (LIBOR) – changes to make sure that the leasing provisions continue to function as intended once LIBOR is discontinued. The measure also introduces a power to allow any unintended tax consequences arising from the transition away from LIBOR and other benchmark rates by businesses and individuals to be addressed in secondary legislation. Details here.

Hybrid and other mismatches – several changes and clarifications to make the rules more proportionate and to ensure that they apply as intended, plus a new rule about dual inclusion income to minimise double taxation in certain circumstances. Details here.

Raising standards for tax advice

The Government is publishing a summary of responses and next steps from the call for evidence on raising standards in the market for tax advice. There is to be a consultation on requiring tax advisers to hold professional indemnity insurance and how to define tax advice. Details here.

Tackling promoters of tax avoidance

There is to be a consultation in the new year on further measures to tackle promoters. Proposals include making onshore partners equally responsible for the anti-avoidance regime penalties that the offshore promoter generates; ensuring taxpayers are fully informed of the reality of what is being sold to them; ensuring promoters cannot continue to profit from avoidance while HMRC investigates them; and strengthening HMRC’s powers to act against companies that sidestep the rules.

Making Tax Digital for corporation tax

The consultation, which closes on 5 March 2021, will look at how the principles established for Making Tax Digital could be implemented for corporation tax.

Further policy announcements:

Annual Investment Allowance

Instead of allowing the AIA to revert to £200,000 from 1 January 2021, the government is extending the temporary £1 million cap set at Budget 2018 until 31 December 2021.

Tobacco Duty uprating

In line with the existing escalator, duty rates on all tobacco products will increase by RPI + 2%. In order to narrow the gap between hand-rolling tobacco (HRT) and cigarette duty rates and ensure the Minimum Excise Tax (MET) continues to be effective in the current market, HRT will increase by RPI + 6% and the MET by RPI + 4%. The changes will take effect on 16 November.

Van Vehicle Excise Duty

The Government will not now introduce a new graduated system of Vehicle Excise Duty for light goods vehicles or motorhomes from April 2021, to avoid distracting the automotive sector and businesses more widely from the challenges they currently face in light of the Covid-19 pandemic. Motorhomes will continue to be placed in the Private/Light Goods class.

Off-payroll working

A technical change to the off-payroll working rules will be made in the next Finance Bill. This will ensure the legislation operates as intended from 6 April 2021 for engagements where an intermediary is a company. The change will correct an unintended widening of the definition of an intermediary, which went beyond the intended scope of the policy.

Notification of uncertain tax treatment by large businesses

The implementation of the new requirement for large businesses to notify HMRC of uncertain tax treatments will be delayed until April 2022.

Timely Tax Payments and Review of Tax Administration Framework

On 21 July, the Government committed to publishing calls for evidence on Timely Tax Payments and a Review of the Tax Administration Framework. Given the continued pressures of the Covid-19 outbreak, and with other consultations in progress, the government will now publish these documents in Spring 2021.

Soft Drinks Industry Levy (SDIL) milk review

In 2017, the Government made a commitment to review the exemption for sugary milk and milk-substitute drinks from the Soft Drinks Industry Levy (SDIL) by 2020. In light of research showing good progress has been made in sugar reduction of milk-based drinks, the government will next consider the exemption for sugary milk and milk-substitute drinks in 2022 after the full reformulation programme completes.

Chris Sanger, EY’s head of tax policy, said: ‘Despite the news from the Chancellor that the Autumn Budget has been postponed this year, it has not prevented HM Treasury from issuing today an Autumn set of tax announcements, to add to the series of Covid-19 support and stimulus mini-Budgets since March.

‘Following today’s ministerial statement from Jesse Norman, Financial Secretary to the Treasury, it is clear that the business of Government carries on, even through a global pandemic, with several important tax policy announcements, including the publication of draft legislation and new consultations.

‘Under normal circumstances, with only a few weeks to go until the end of the year and an Autumn Budget under their belt, the Treasury would perhaps have held off from issuing any significant external announcements.

‘However, in the current climate, with uncertainty the byword defining the last eight months, we shouldn’t rule out further fiscal announcements designed to guide the UK on its path to future recovery.’

By Pat Sweet

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