Autumn Budget 2021: VAT

Freeports

The government will legislate in Finance Bill 2021-22 to introduce additional elements to the VAT free zone model for Freeports.

The legislation will:

  • Implement a free zone exit charge to ensure businesses do not gain an unintended tax advantage from the zero-rate in the free zone model
  • Make amendments to existing VAT law to ensure free zone rules and warehousing rules are mutually exclusive
  • Amend elements of the historic free zone legislation, which are incompatible with the new free zone VAT rules

The measure will take effect from 3 November 2021.

The Implementation of VAT rules in free zones tax information and impact note provides more information.

Northern Ireland second-hand margin scheme – interim arrangement

Pending the introduction of a long term solution, it was announced that the government will legislate in Finance Bill 2021-22 to extend the VAT margin scheme to apply in Northern Ireland on a limited basis, in respect of motor vehicles sourced from Great Britain, for the period until the Second-hand Motor Vehicle Export Refund Scheme is implemented. As a result, motor vehicles first registered in the United Kingdom prior to 1 January 2021 will be available to sell under the VAT margin scheme in Northern Ireland during that time period.

This measure would take effect, should a relevant agreement be reached with the EU and will apply retrospectively from 1 January 2021.

The Northern Ireland second-hand margin scheme interim arrangement tax information and impact note provides more information.

Second-hand Motor Vehicle Export Refund Scheme

Following on from the above, a more long term measure was announced whereby the government will legislate in Finance Bill 2021-22 to be able to introduce a Second-hand Motor Vehicle Export Refund Scheme. Businesses that remove used motor vehicles from Great Britain for resale in Northern Ireland or the EU may be able to claim a refund of VAT following export.

This will ensure that Northern Ireland motor vehicle dealers will remain in a comparable position to those applying the VAT margin scheme elsewhere in the UK. Further details regarding the arrangements of the scheme will be provided in due course, including any regulations brought forward to give it effect.

The Second-hand Motor Vehicle Export Refund Scheme tax information and impact note provides more information.

VAT: Exemption for dental prostheses imports

The government will legislate in Finance Bill 2021-22 to extend the current VAT exemption for dental prostheses supplied by registered dentists and other dental care professionals or dental technicians to imports of dental prostheses by these persons. This will ensure that the VAT treatment for such prostheses supplied into and within the United Kingdom, including between Great Britain and Northern Ireland, is consistent. This measure will take effect on or after the date of Royal Assent of Finance Bill 2021 and will apply retrospectively from 1 January 2021.

The VAT Exemption for dental prostheses imports tax information and impact note provides more information.

VAT treatment of fund management fees

Lastly, the government has announced a consultation on options to simplify the VAT treatment of fund management fees. The announced consultation follows on from the wider review of UK funds regime by HM Treasury in January 2021. At this stage, the consultation will simply look to take views and opinions as there are no imminent plans for VAT rule changes (that we are aware of) by HMRC. We will of course update our clients once the consultation details are published and would invite comments and feedback accordingly.

Autumn Budget 2021: tax disputes and resolutions

1.43 Clamping down on promoters of tax avoidance

HMRC have been piling pressure on both the users and promoters of avoidance schemes recently. They have set up specialist teams to tackle these, challenging them through the Courts, offering settlement opportunities to participants as an ‘out’ in exchange for paying the lost tax plus interest and introducing penalties for those who have promoted avoidance schemes.

The measures introduced here are:

  • A power to seek a freezing order over assets of a promoter who has been charged with a relevant anti-avoidance penalty to stop them dissipating their assets to stop them paying the penalty
  • An additional penalty which HMRC can apply to an entity which facilitates the promotion of tax avoidance by offshore promoters
  • A new power to enable HMRC to present winding-up petitions to the court for companies or partnerships operating against the public interest
  • New legislation allowing HMRC to name promoters and detail their methods and schemes, at the earliest possible opportunity to warn the public of the risks and to help those already involved to leave avoidance arrangements

These measures strengthen HMRC’s position in tackling avoidance and show the direction of travel towards their aim of stamping it out completely.

1.44 Discovery Assessments

HMRC’s ‘discovery’ powers allow HMRC to make an assessment to recover tax when an insufficiency is discovered in prior tax years, subject to certain time limits. This is a powerful weapon in HMRC’s arsenal, and is commonly used in compliance cases

Recently, HMRC has faced challenges through the tax tribunal that the discovery powers cannot apply to each of the Higher Income Child Benefit Charge (HICBC), Gift Aid (where the donor has paid insufficient tax to cover the tax being reclaimed) and certain pension charges.

In order to address this, the new measure introduced clarifies the original legislation at section 29 of the Taxes Management Act 1970 and confirms that it does apply to HICBC, Gift Aid and pension charges, whilst also confirming that individuals chargeable to these income tax charges need to notify HMRC.

1.47 Power to make temporary modifications of taxation of employment income

This measure is stated to enable the government to support taxpayers in the event of “a disaster or emergency of national significance as determined by HM Treasury”. It is explained covid-19 highlighted the limited scope and difficulties in making changes to the current benefits in kind and expenses tax system to be able to respond quickly to the pandemic. The examples which were given were:

  • Exempting specific benefits in kind from income tax where appropriate
  • Changing the qualifying conditions for exemptions on benefits in kind
  • Exempting specified reimbursements from the charge to income tax
  • Providing relief for specified expenses

Whilst the policy paper is not specific in the scenarios which may necessitate such a modification, we expect this would be in situations such as medical benefits or reimbursements for home office equipment during COVID-19.

Autumn Budget Report 2021

I am pleased to share our full summary of the 2021 Autumn Budget and Spending Review.

In a tax and spend Budget, the Chancellor, Rishi Sunak, set out the Government’s plans. Previously announced tax increases, including to Corporation Tax and the new Health and Social Care Levy, mean that the tax burden is now at its highest since the early 1950s, and Government spending is at its highest since the 1970s.  The Chancellor concluded his speech with a pledge to reduce taxes by the end of this Parliament.

Our Budget summary provides an overview of the key announcements arising from the Chancellor’s speech, and how they are likely to impact your business and personal finances.

You can download our full summary in pdf format below. Please get in touch with your usual haysmacintyre contact or any member of the Tax team, if you have any queries.

Autumn Budget 2021: highlights

The key tax announcements include:

  • Creative tax reliefs for theatres, orchestras, museums and galleries doubled until April 2023, with rates reducing to current levels by 2024
  • R&D Tax Relief:
    • Scope to be expanded to include cloud computing and data costs
    • Restricted to UK activity from April 2023
  • Tonnage tax for shipping: amendments to favour shipping carrying a UK flag
  • Air passenger duty:
    • A reduced rate for internal UK flights from April 2023
    • A new additional rate for long-haul flights
  • Annual Investment Allowance of £1m extended to April 2023
  • Business rates:
    • 50% discount for the retail, hospitality and leisure sectors for 12 months
    • Revaluations every three years
    • 12 months exemption for business property improvements
    • Investment relief for green investment
    • Multiplier frozen for 2022/23
  • Alcohol duty to be simplified and reformed:
    • To be based on alcohol strength
    • Reliefs for small producers
    • Relief for draught beers and ciders
    • Planned increase for spirits cancelled
  • National Living Wage to increase to £9.50 per hour from April 2022
  • Fuel duty: planned rate rise cancelled
  • Universal Credit: taper rate to be reduced from 63% to 55% by 1 December 2021
  • Capital Gains Tax on residential property: reporting deadline increased from 30 to 60 days
  • A pledge to reduce taxes by the end of this Parliament

Our detailed summary will follow tomorrow morning. Please do not hesitate to get in touch with a member of our Tax team, your usual haysmacintyre contact or Katharine Arthur if you have any queries.

Budget Report 2021

The Chancellor, Rishi Sunak, set out the Government’s tax and spending plans for the year ahead, announcing further support for jobs and businesses through to autumn, and beyond. With the freezing of many tax thresholds and allowances, the Chancellor is relying on fiscal drag and an earlier than hoped economic recovery to begin to balance the books and plan for the future.

Many key tax decisions have been postponed for now, save for an increase to the headline Corporation Tax rate to 25% from April 2023, and the introduction of a ‘super-deduction’ of 130% for qualifying capital spend by businesses. Companies will also welcome the enhanced ability to carry back losses to access repayments of tax from earlier this year.

Our Budget summary provides an overview of the key announcements arising from the Chancellor’s speech, and how they are likely to impact your business and personal finances.

We expect there are more changes to come. HMRC will publish a Command Paper on 23 March, with details of a number of consultations.

As we begin to dare hope of a return to a semblance of normal life as COVID-19 restrictions are eased, I hope you, your family and colleagues are well.

You can download our full summary below. Please get in touch with your usual haysmacintyre contact or any member of the Tax team, if you have any queries.

Budget 2021 highlights

The key tax measure announcements include:

  • Personal tax thresholds are frozen until 2022. Increases are promised in 2022, with a further freeze until 2026.
  • From 2023 the Corporation Tax rate will increase to 25%. The current rate of 19% will continue to apply to small businesses with profits of £50k or less. A tapered rate will apply to companies with profits of between £50k and £250k.
  • Companies will be able to carry back losses for three years, to secure repayment of tax paid in prior years.
  • A super-deduction (Capital Allowance) for business investment at 130% of costs, for companies, will apply for two years.
  • The nil rate band for Inheritance Tax, the Lifetime Limit and Annual Allowances for pensions, and the VAT registration threshold are all frozen.
  • The Coronavirus Job Retention Scheme (furlough scheme) is extended to the end of September, with a 10% contribution from employers for July and August, and 20% for September. Employees will continue to receive 80% of salary for unworked hours.
  • Self-Employed Support Scheme extended, with grants 4 and 5. The newly self-employed who have submitted 2019-20 tax returns can apply. An 80% grant continues to apply where profits are reduced by 30% or more. A 30% grant will apply where profits are reduced by less than 30%.
  • Stamp Duty Land Tax (SDLT): the £500k nil rate band is extended to 30 June. A £250k nil rate band will then apply until 30 September.
  • The 5% rate of VAT for the tourism and hospitality sectors is extended to 30 June. An interim rate of 12.5% will then apply until April 2022.
  • New restart grants of £6k for non-essential retail businesses and £18k for hospitality businesses will be available from April.
  • Business rates holiday for the retail, hospitality and tourism sectors is extended to 30 June. A two-thirds discount will then apply for the rest of 2021/22.
  • Investment in HMRC to tackle COVID-19 support fraud and tax avoidance.

Our more detailed summary will follow tomorrow morning. Please do not hesitate to get in touch with a member of our Tax team or your usual haysmacintyre contact if you have any queries.

Budget: VAT

It will then increase to 12.5% until 31 March 2022, before returning to the standard-rate of 20%.

The VAT registration threshold remains frozen at £85,000 of taxable turnover until April 2024.

As previously announced, Making Tax Digital will be extended to all VAT registered business from 1 April 2022.

A new points-based penalty for the late submission of VAT returns will be introduced. Businesses will incur a £200 penalty for each late submission after a points threshold has been reached.

A percentage based penalty will be introduced for late payments of VAT: no penalty due on tax paid within 15 days of when it was supposed to be paid; a penalty of 2% if it is paid within 30 days of when it was supposed to be paid; 4% on tax paid more than 30 days late, followed by a further 4% penalty calculated on a daily basis from day 31 onwards.

VAT interest provisions will be aligned with income tax with late payment interest also payable on amounts not paid by the due date until the tax has been paid.

Please contact Phil Salmon, another member of the VAT team, or your usual haysmacintyre contact for further details and assistance in relation to the above.

Budget: UK’s domestic legislation

Today’s Budget includes a repeal of the UK’s domestic legislation implementing the EU Interest and Royalties Directive (IRD), effective from 1 June 2021. This legislation (sections 757 to 767 of the Income Tax (Trading and Other Income) Act 2005) provided an exemption from withholding tax on intra-group interest and royalty payments from UK to EU companies. Taxpayers should therefore carefully check their agreements for interest-bearing investments and royalty agreements, for the impact of any ‘grossing up’ clauses, to determine whether they will be required to make increased royalty payments as a result of the withholding tax now charged.

The IRD removed the need to impose withholding taxes on payments of interest and royalties between associated companies within the EU. ‘Associated’ is defined differently to the normal Corporation Tax definition:

  • 25% or more of the capital in the other; or
  • 25% or more of the voting rights in the other.

Or, a third company also resident in the UK or EU must hold directly:

  • 25% or more of the capital in each of them; or
  • 25% or more of the voting rights in each of them.

From 1 January 2021, the UK could no longer benefit from the IRD – this immediately had an impact for payments made from EU member states to the UK. Instead, companies must refer to the terms of the applicable double taxation agreement between the UK and the relevant EU member state to determine the appropriate rate of withholding tax to apply. Up until today’s announcement, the provision was retained in domestic law and therefore interest and royalties paid from the UK to an EU member state still had a withholding tax rate of nil.

For companies that relied on this provision, the relevant double taxation treaty must be checked for the correct treaty rate going forward. In double taxation agreements with several EU jurisdictions the minimum withholding rate is more than 0%.

If you have any questions, please speak to a member of our Tax team or your usual haysmacintyre contact.

Budget: Investment in HMRC

COVID-19 support fraud and tax avoidance

The Government will invest heavily in a Taxpayer Protection Taskforce of 1,265 HMRC staff to combat fraud within COVID-19 support packages, inclusive of Coronavirus Job Retention Scheme and Self-Employment Income Support Scheme. To defer fraud, they are to raise awareness on enforcement action together with strengthening the law enforcement for Bounce Back Loans.

New powers will be introduced to make the possession, manufacture, distribution and promotion of Electronic Sales Suppression (ESS) software and hardware an offence.

General

Additional investment is to be made during the 2021-22 tax year to increase HMRC resources and investment in IT, the resources will include the recruitment of additional HMRC staff to target non-compliance. As part of their ongoing program, compliance work will continue on the loan charge, historic disguised remuneration cases and early interaction with individuals to encourage their exit from tax avoidance schemes.