L-Day takes forward plans to reform tax system for small businesses

Legislation (or ‘L’) Day took place on Tuesday 20 July. A number of pieces of draft legislation have been published for consultation ahead of the next Finance Bill, alongside proposals for new tax policy announcements and the publication of the findings of recent consultations.

Ministers also used L-Day to publish a research report into the impact of Making Tax Digital for VAT.

In a press release announcing the publication of the draft legislation, the government chose to focus on its proposals to reform the tax system to make it easier for small-businesses to file their tax returns.

The government says that its plans to consult on Basis Period Reform will simplify the system and reduce complexities associated with the rules for tax returns filed by the self-employed and partnerships. They say that the existing rules are ‘complex’ and can make it harder for businesses to properly allocate profits to particular tax years, causing ‘confusion and error’.

Financial Secretary to the Treasury Jesse Norman said that these changes would “allow self-employed people to spend less time doing tax admin and more time growing their business and creating jobs.”

The government added that the externally-commissioned research into MTD for VAT highlighted “positive developments in record-keeping behaviour and on the benefits MTD can deliver and is delivering for businesses.”

The other measures announced via a written statement to the House of Commons include the following:

Draft legislation (previously announced)

• Clamping down on tax avoidance – a range of measures to clamp down on the promoters of tax avoidance, giving HMRC powers to freeze the assets of promoters, ensure penalties are paid, close down avoidance schemes and support taxpayers to identify and exit such schemes.
• Notification of an uncertain tax treatment by large businesses –  draft legislation to implement a new requirement for large businesses to notify HMRC where they have adopted uncertain tax treatments. This will apply to returns due to be filed on or after 1 April 2022.
• Tax treatment of asset holding companies (AHCs) –  a response to the government’s second stage consultation and initial draft legislation relating to the tax treatment of AHCs.
• Hybrid and other mismatches –a technical change to the rules governing hybrid and other mismatches.
• Capital Allowances – amending the requirements for Structures and Buildings Allowance (SBA) allowance statements to include the date qualifying expenditure is incurred or treated as incurred.
• New powers and penalties to tackle electronic sales suppression (ESS) – making it an offence to possess, make, supply and promote ESS software and hardware. HMRC will have powers to identify developers and suppliers, access software developers’ source code and the locations of code and data.
• Scheme Pays Deadlines – extending the reporting and payment deadline for individuals to ask their pension scheme to settle their annual allowance charges from previous years by reducing their future pension benefits in the process known as ‘Scheme Pays’.
• Increasing the Normal Minimum Pension Age (NMPA) – from 55 to 57 in April 2028 and protecting members uniformed public service pension schemes and those with unqualified rights to take their pension below age 57.
• Tobacco duty evasion – introducing tougher sanctions on tobacco duty evasion, including fines of up to £10,000 for repeat offences and powers for HMRC to enforce such sanctions.

Draft legislation (previously unannounced)

• Location of Risk regulation – draft legislation to clarify the rules for determining the location of a risk for Insurance Premium Tax (IPT) purposes by placing the criteria into primary legislation and ensuring clarity for taxpayers and HMRC.

Policy announcements

Measures to ensure that London Capital & Finance compensation payments are not subject to Capital Gains Tax and that two new Scottish social security payments, and payments made by local authorities through Covid local grant schemes are not subject to income tax. These measures are to be made retrospective.

Other publications

The government has also published summaries of five consultations. One relates to the Modernisation of the stamp taxes on shares framework while the other four are related to VAT (VAT Grouping, Reform to VAT Refund Rules in the public sector, VAT and the Sharing Economy and VAT and value shifting)

What happens next?

These measures will form part of the upcoming Finance Bill (which will be known as Finance Bill 2021-22) and period of consultation will run from now until 14 September 2021. The Finance Bill will be published following the UK Budget, which had been expected this autumn. However, some uncertainty remains over when the Chancellor plans to deliver his statement.

A newspaper report in the Guardian this past weekend suggested that Rishi Sunak was thinking of delaying the statement until spring 2022 to “weigh up the economic impact” of the end of furlough and the third wave of the coronavirus pandemic. The Treasury did not respond to the suggestion, although officials were reported as saying that the decision on whether to go ahead in the autumn or wait until the spring was “finely balanced”.

By Chris Young, CIOT External Relations team.