In line with the tax policy-making framework, the Government is publishing draft legislation to be included in Finance Bill 2021-22. This allows for technical consultation and provides taxpayers with predictability over future tax policy changes. Alongside this, the Government is making announcements in a number of areas of tax policy.
Publication of draft legislation
The Government is publishing draft legislation and associated documents, further to previous announcements, including at Budget or in Tax Policies and Consultations (CP 404, published on 23 March 2021):
- Sanctions to tackle tobacco duty evasion: The Government is publishing a summary of responses to the consultation on ‘sanctions to tackle tobacco duty evasion’ alongside draft legislation. Respondents to the consultation indicated broad support for tougher sanctions to tackle small scale repeated tobacco duty evasion and for the concept of extending the use of these new sanctions to Trading Standards authorities. The draft legislation will introduce a package of sanctions, including a new penalty of up to £10,000 for repeated contraventions. The legislation will also grant HMRC the power to make future regulations for the operation of these sanctions, including provisions to extend their use to Trading Standards.
- Clamping down on promoters of tax avoidance: As announced in November 2020, the Government is bringing forward a package of measures to clamp down on promoters of tax avoidance. Proposals include ensuring HMRC can protect their position by freezing a promoter’s assets so that the penalties they are liable for are paid, tackling offshore promoters and the UK entities that support them, closing down companies that promote avoidance schemes, and supporting taxpayers to identify and exit avoidance schemes. This package of measures builds on the Promoters Strategy, announced at Budget 2020, and the measures to strengthen existing anti-avoidance regimes which were legislated for in Finance Act 2021.
- Hybrid and other mismatches: The draft legislation will make a technical change to the rules governing hybrid and other mismatches. The change will ensure that the legislation applies to certain types of entities that are seen as transparent in their home jurisdictions, including US Limited Liability Corporations, in the same way as it does to partnerships.
- Capital Allowances – Technical amendment to allowance statement requirements for Structures and Buildings Allowance (SBA): The draft legislation will amend the requirements for SBA allowance statements, to include the date qualifying expenditure is incurred or treated as incurred when the allowance period commences from this date. Without this change, subsequent owners of an asset on which SBA is being claimed may sensibly assume the date the allowance period commences is the date the asset is brought into use. Clarity for businesses on the remaining length of the allowance period means they will not be adversely affected by failing to claim the full relief to which they are entitled.
- Powers to tackle electronic sales suppression (ESS): This draft legislation will introduce new powers to tackle electronic sales suppression. The new ESS-specific powers and penalties will make offences of possessing, making, supplying and promoting ESS software and hardware. There will also be ESS-specific information powers allowing HMRC investigators to identify developers and suppliers in the ESS supply chain; and access software developers’ source code and the locations of code and data.
- Scheme Pays Deadlines: The draft legislation will extend 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’. This will resolve a technical issue that arises within the pension tax framework as a result of the Government’s planned remedy for addressing the age discrimination found in the 2015 public service pension reforms (the ‘McCloud Case’). The Government will make further technical updates to pension tax rules as necessary to remove any other anomalies as a result of the remedy.
- Increasing Normal Minimum Pension Age (NMPA): The draft legislation will increase the normal minimum pension age from 55 to 57 in April 2028. This is the age at which most members of registered pension schemes can draw benefits without incurring unauthorised payment charges. Members of uniformed public service pension schemes and those with unqualified rights to take their pension below age 57 will be protected from these changes. After considering consultation responses, individuals will be able to keep their protected pension age if they transfer their pension.
- Notification of an uncertain tax treatment by large businesses: The Government is publishing a summary of responses and draft legislation to implement a new requirement for large businesses to notify HMRC where they have adopted an uncertain tax treatment. This will apply to returns due to be filed on or after 1 April 2022. This requirement to notify will provide HMRC with accurate and timely information to encourage earlier identification and resolution of uncertain tax treatments. This will help address the legal interpretation portion of the tax gap, estimated to be £4.9bn in 2018-19. The Government will also publish accompanying draft guidance in due course.
- Tax treatment of asset holding companies (AHCs): The Government is responding to its second stage consultation on, and publishing initial draft legislation relating to, the tax treatment of AHCs. These targeted reforms are designed to enhance the UK’s attractiveness as a location for AHCs, and represent a balanced approach in response to stakeholder representations.
The Government is also publishing draft legislation and associated documents in the following areas which have not been previously announced:
- Basis Period Reform: Under the current system, tax returns filed by the self-employed and partnerships are based on a business's set of accounts ending in the tax year. A set of complex rules can apply to allocate the profits of those businesses to a tax year, which can cause confusion and error. The Government has announced a reform and consultation on how to simplify the system.
- Location of Risk regulation: Under current legislation, the determination of the location of a risk for Insurance Premium Tax (IPT) purposes is unclear. The Government has therefore published draft legislation to clarify the rules for determining the location of a risk by placing the criteria into the primary legislation governing IPT. This will ensure clarity for taxpayers and HMRC, and retain the principles initially set out in legislation in 2001.
All draft legislation is accompanied by a Tax Information and Impact Note (TIIN), an Explanatory Note (EN) and, where applicable, a summary of consultation responses document.
- London Capital & Finance compensation payments: The Government will legislate in the Autumn to ensure that payments made by the London Capital & Finance Compensation Scheme will not be subject to Capital Gains Tax. This will provide certainty to bondholders that these payments will be free from income tax and Capital Gains Tax. This measure will apply retrospectively from the date payments are made. The Government will also ensure that the Compensation Scheme terms enable bondholders who receive compensation in respect of a subscription to an ISA to return the money to an ISA without it contributing to their annual subscription limit.
- Income tax exemption of new social security payments in Scotland: The Government will legislate in the Autumn to ensure that two new social security payments made by the Scottish Government will not be subject to income tax (as provided for in the 2016 Fiscal Framework). This legislation will apply to the Child Winter Heating Assistance (introduced in November 2020) and the Short-Term Assistance (introduced in July 2021). The legislation will be retrospective, from November 2020 and July 2021 respectively. HM Revenue and Customs will not collect any income tax that may have been due on payments made from November 2020 to the date the legislation takes effect.
- Covid Local Grant scheme payments: The Government will legislate in the Autumn to ensure that payments made by Local Authorities to families through the Covid Winter Grant Scheme and Covid Local Grant Scheme, and similar schemes operated by the Devolved Administrations, are not subject to income tax. This will provide certainty to those who have benefited from the additional funding provided to Local Authorities. The legislation will be retrospective and cover payments made from 2020-21 onwards.
The Government is also publishing summaries of responses to the following consultations:
- ‘Modernisation of the stamp taxes on shares framework’
- ‘VAT Grouping – Establishment, Eligibility and Registration’
- ‘VAT and the Public Sector: Reform to VAT Refund Rules’
- ‘VAT and the Sharing Economy’
- ‘VAT and value shifting’
Finally, the Government is also publishing a research report titled ‘Impact of Making Tax Digital for VAT’. This considers the impact of Making Tax Digital (MTD) across those taxpayers that have been required to operate it for VAT from April 2019 and further demonstrates that taxpayers are experiencing benefits in operating MTD.
All publications can be found on the GOV.UK website. The Government’s tax consultation tracker has also been updated.