Our tax experts have produced detailed commentary on the draft clauses announced on Legislation Day 2021, which are all open for consultation until 14 September.

Introduction

The initial draft clauses for the 2022 Finance Act were published on 20 July 2021 and include more detail on previously announced proposals. Whilst the Government refers to it as draft legislation for Finance Bill 2021/22, in this commentary, for clarity, it is referred to as Draft Finance Bill 2022. The final contents of the Bill will be subject to confirmation at a later date, expected to be in the Autumn, though it is uncertain whether this will be combined with an Autumn Budget.

Direct taxes

Basis period reform for unincorporated trading businesses

The government is introducing a reform of basis periods for unincorporated trading businesses in draft FB 2022 whereby businesses will be taxed on the profits arising in a tax year for 2023/24 with a transitional year in 2022/23. This is different to the current year basis in force at the moment which uses the general rule that a basis period for a tax year is the 12 months ending with the accounting date in that tax year together with additional rules for the opening and closing years of a business and when there is a change in accounting period end. The operation of the current rules in the early years of a business can create overlapping basis periods which result in profits being charged twice and the creation of overlap relief which is usually given on the cessation of the business. The proposed reform aims to make the basis of assessment for trading profits simpler and aligned with other sources of income but also links in with the government’s plans for Making Tax Digital which becomes mandatory for self-employed businesses from April 2023.

The changes include:

  • from 2023/24 the profits of the tax year will be the profits arising in that tax year with accounting period profits being apportioned by the number of days or another reasonable basis

  • the basis period for the transitional year of 2022/23 will be the current year basis period profits plus the transitional period profits which arise in the period from the day after the current year basis period to 5 April 2023

  • in the transitional year of 2022/23 all overlap relief brought forward must be used and in subsequent years no further overlap relief can be created

  • any additional profits arising for the business under the new rules will be spread over five tax years starting in 2022/23 with an option to elect to accelerate the tax charge

  • trading and property businesses can treat an accounting date between 31 March and 4 April inclusive as being equivalent to ending at the end of the tax year and so would not have to make small apportionments of profits

  • the same basis period reform would apply for businesses which currently use the cash basis to calculate their profits

  • the proposals apply to the self-employed, partnerships, trusts and estates with trading income, the proposals will not affect companies apart from some non-resident companies

The government has published a consultation on the proposals which closes on 31 August 2021, alongside a policy paper, draft legislation and explanatory notes. The draft legislation is in clause 1 and 2 of and Schedule 1 to the draft FB 2022.

For more detail on basis periods see Simon’s Taxes B8.101A.

Structures and buildings allowances (SBAs)-amendment to allowance statement

As announced at tax consultation day on 23 March 2021, FB 2022 will make a relatively minor change to the requirements for SBA allowance statements, to include the date qualifying expenditure is treated as incurred when the allowance period commences from this date.

SBAs (capital allowances on structures and buildings) can only be claimed by a person who makes or obtains an allowance statement to support the amount of their claim. Under the current rules, the allowance statement must include the amount of the qualifying expenditure and the date on which the building or structure was first brought into use, but there is no requirement to state the date when the qualifying expenditure was incurred.

Sometimes qualifying expenditure may be incurred after the building or structure was brought into use, for instance where the expenditure is on a renovation or conversion. The intention of the amended legislation is to ensure that in these circumstances a subsequent purchaser of the building or structure does not miss out on allowances by assuming that the period over which SBAs can be claimed (33 1/3 years, or ten years in freeports) began when the building or structure was brought into use.

The changes will have effect from the date of Royal Assent to FB 2022.

The government has published a policy paper, draft legislation and explanatory notes.

For information on SBAs, see Simon’s Taxes B3.271.

Real Estate Investment Trusts: amendments

Following earlier consultation, the government is introducing amendments to the REIT regime. These aim to reduce administrative burden and unnecessary costs for certain REITs and to increase the attractiveness of the regime.

The changes:

  • remove the requirement for REITs to be admitted to trading on a recognised stock exchange where that REIT is wholly or almost wholly ( at least 99%) owned by institutional investors (the listing requirement still applies to other REITs)

  • amend the definition of an overseas equivalent of a UK REIT so that the overseas entity itself, rather than the overseas regime to which it is subject, needs to meet the equivalence test

  • remove investors in UK REITs who are entitled to payment of property income distributions (PIDs) without tax being deducted, such as UK companies, from the charge on holders of excessive rights, and

  • amend the balance of business test:

    to extend the list of exclusions from profits taken into account for the test to include residual business profits resulting from compliance with planning obligations entered into in accordance with section 106 of the Town and Country Planning Act 1990 (this means that non-rental profits arising because a REIT has to comply with certain planning obligations will be disregarded), and

    to introduce a gateway test based on consolidated accounts, so that a REIT will only have to prepare the required financial statements for each group member if it fails the gateway test (group property rental business profits or assets to be 80% or more of total group profits or assets)

Further changes to the REIT regime will be explored as part of the wider review of funds, such as introducing a close company look through test similar to the one used in TCGA 1992, Sch 5AAA and further changes to the balance of business test.

The changes will have effect from 1 April 2022.

The government has published a consultation outcome, alongside a policy paper, draft legislation and explanatory notes.

For more on REITs see Simon’s Taxes D7.1101.

Amendments to the hybrid and other mismatches rules

Although the government withdrew its attempt to legislate for this change in Finance Act 2021 (albeit it was then trying to do so by amending the definition of a hybrid entity), it is now introducing an amendment to TIOPA 2010, s 259GB which, in the context of determining the extent of a mismatch, aims to treat certain non-UK transparent entities (ie US LLCs) as partnerships.

This change also includes:

  • a definition of a ‘relevant transparent entity’ to which the change applies-this requires:

    the non-UK jurisdiction in which the transparent entity is constituted to treat all of the entity’s income and profits as belonging to its members, and

    that any tax that is (or would be) charged on such member that is resident in that jurisdiction (ie the jurisdiction where the entity is constituted) to be charged at a rate other than nil-this should ensure that a transparent entity is not excluded from being treated as a partnership if its members include tax-exempt bodies, and

  • a definition of a member of a relevant transparent entity being a person that is entitled to a proportion of the profits of the entity as a result of the holding of shares or a similar entitlement if the entity does not have share capital

The changes will have retrospective effect from 1 January 2017, when the hybrid rules first took effect.

The government has published a policy paper, draft legislation and explanatory notes.

For more on hybrid mismatches see Simon’s Taxes D4.701

Taxation of asset holding companies in alternative fund structures

Following a two-stage consultation, the government is introducing a new, elective regime for the taxation of qualifying asset holding companies (QAHCs) and some payments that they make. The new measures form part of a wider review of the UK funds regime, launched at Spring Budget 2020, to consider tax and regulatory reforms which could enhance the UK’s competitiveness as a location for asset management and investment funds.

To benefit from the new regime, QAHCs must be at least 70% owned by diversely owned, eligible funds (with regulated managers) or certain institutional investors. In addition, they must exist to facilitate the flow of capital, income and gains between investors and underlying investments, with only minimal other activities.

Key features of the new QAHC regime include:

  • exempting gains accruing to a QAHC on disposals of overseas land or relevant shares (not including UK property rich assets)

  • exempting the income profits of a QAHC’s overseas property business where those profits are subject to tax overseas

  • allowing deductions for certain interest payments that would usually be disallowed as distributions on the basis of being paid under profit participating loans and results-dependent debt

  • switching off the late paid interest rules so that in certain situations interest payments are relieved for a QAHC on an accruals rather than paid basis

  • disapplying the obligation to deduct tax from payments of interest on securities held by investors in a QAHC

  • switching off the distributions rules so as to allow premiums paid when a QAHC repurchases its share capital from an individual investor to be treated as capital rather than income where, broadly, these derive from capital gains realised by the QAHC on the underlying investments

  • exempting repurchases by a QAHC of share and loan capital which it had previously issued  from stamp duty and SDRT

  • provisions to guard against the potential for abuse or avoidance

The aim of the new regime is to remove barriers to the establishment of QAHCs in the UK, by  recognising  the circumstances where such entities are used to facilitate the flow of capital, income and gains between investors and underlying investments and ensuring that UK investors are taxed broadly as if they invested in the underlying assets directly and QAHCs pay no more tax than is proportionate to the activities they perform. The QAHC eligibility criteria is intended to ensure that the regime is only available to investment arrangements that involve the pooling of investor funds with professional investment managers. The measures are not intended to affect  the tax treatment of any limited trading activity or other non-qualifying investment activity carried on by a QAHC.

The changes are intended to have effect from 1 April 2022 for the purposes of corporation tax, stamp duty and SDRT, and from 6 April 2022 for income tax and CGT purposes.

The government has published a policy paper, an initial set of draft clauses intended for FB 2022 which cover the core aspects of the new regime, and explanatory notes, as well as a summary of responses to the second-stage consultation that ran until 23 February 2021 which explains the governments approach to the new regime. Not all of the required provisions have been included in the draft legislation published so far, and the government notes that further work is needed ahead of the proposed changes coming into force and stakeholder engagement will continue.

For more on asset holding companies see Simon’s Taxes D7.1306.

Increasing the normal minimum pension age

Following a consultation on how to implement the changes announced in 2014, the government is introducing an increase to the normal minimum pension age (NMPA) from 55 to 57 by amending FA 2004. The aim of this change is to keep in line with increasing life expectancy and changes to working practices. This follows a change in the NMPA from 50 to 55 in 2010.

The changes include:

  • increasing the NMPA from 55 to 57

  • introducing a protection scheme for pension schemes of certain uniformed services where an unfettered right to an earlier retirement age is in place

The changes will have effect from 6 April 2028.

These changes will have no effect on those able to access pensions early due to ill health; that legislation will not be amended.

The government has published a summary of responses to the consultation, alongside a policy paper, draft legislation and explanatory notes.

For more on the pension minimum age see Simon’s Taxes E7.202.

Pension Scheme Pays reporting: information and notice deadlines

The government has published draft legislation setting out changes to be included in Draft Finance Bill 2022 to the process known as ‘Scheme Pays’.

Under current legislation, if an individual's liability to the annual allowance tax charge for a tax year exceeds £2,000, the individual may arrange for the tax to be paid from their pension benefits (‘Scheme Pays’). The individual does this by giving notice to the scheme administrator of a registered pension scheme of which they are a member. The maximum that can be specified is the tax liability on the excess of pension input amounts for that scheme over the amount of the allowance. The notice must be given no later than the first anniversary of 31 July following the tax year in question, e.g. by 31 July 2021 for the year 2019/20. SI 2011/1793 sets out the information and declarations to be included in the notice.

Under the draft legislation, the deadline in most cases remains 31 July in the year following the year in which the tax year ends. However, where the scheme administrator gives the individual information about a change to the pension scheme input amount for the tax year, and that information is not given until on or after 2 May in the year following that in which the tax year ends, i.e. 2 May 2022 for 2020/21, the individual has until the earlier of the following in which to give the notice:

  • the end of the three months beginning with the day on which the scheme administrator gives the individual the information

  • the end of the six years following the tax year in question

It is expected that the scheme administrator gives the individual the information within six years after the tax year in question. The extended deadlines do not apply otherwise.

Under current law, the tax is taken as being charged on the scheme administrator in the quarter ended 31 December in the year following that in which the tax year ended. This will be changed to the quarter following that in which the scheme administrator receives the notice from the individual which gives rise to the liability.

This measure will have effect from 6 April 2022 but will apply in any case where an individual receives a retrospective amendment to their pension input amount for 2016/17 or a subsequent year.

The intention is that more individuals will benefit from the Scheme Pays facility. Currently, individuals with a retrospective increase in pension savings for a previous tax year are unable to use Scheme Pays and have to pay the annual allowance tax charge themselves.

The government has published a policy paper, draft legislation and explanatory note.

For more on the payment of the pensions annual allowance charge see Simon’s Taxes E7.215.

Indirect taxes

Electronic sales suppression (ESS)

Following a call for evidence in 2018–19 and announcements at Spring Budget 2021, the government is introducing new measures to tackle ESS, which occurs when a business deliberately manipulates its electronic sales records to reduce or hide the value of its sales while providing what looks like a compliant audit trail from sale to tax reporting.

The changes include:

  • establishing substantial penalties for making, supplying, promoting or using ’Electronic Sales Suppression Tools’, which includes any software, hardware or other thing that is capable of suppressing electronic sales records and which it is reasonable to assume has a main function of doing so

  • taxpayer protections including removal of penalties where the person in possession of such a tool is unaware that it was an ESS tool; special reduction and appeals, and

  • ESS-specific information powers to enable HMRC to obtain the details of those involved in the supply of ESS software or hardware and to accuse the developers’ source code

The changes will have effect from Royal Assent to FB 2022.

The government has published a policy paper, draft legislation and explanatory notes.

Insurance premium tax: identifying where the risk is situated

UK insurance premium tax (IPT) is not due where the risk under an insurance contract is situated outside the UK. Since 2009, EU law was used to determine the location of an insurance contract for IPT purposes and, since the end of the Brexit implementation period, retained EU law (ie Article 7(6) of Retained Regulation (EC) 593/2008 which refers to Article 13(13) of Directive 2009/138/EU), has been used for this purpose. This change will relocate the criteria for determining the location of an insurance contract into primary legislation but without making substantive changes.

The change will have effect from Royal Assent to FB 2022.

The government has published a policy paper, draft legislation and explanatory notes.

For more on Insurance premium tax see De Voil Indirect Tax service V18.102.

Tracing and security for tobacco products

Following earlier consultation, draft legislation was published on tracing and security for tobacco products aimed at giving HMRC powers to introduce more visible street level sanctions to tackle tobacco duty evasion. The sanctions are to be linked to the Tobacco Track and Trace System (TTS).

The changes will have effect on and after the date of Royal Assent to FB 2022.

The government has published a summary of responses to the consultation, alsongside a policy paper, draft legislation and explanatory notes.

Administration

Large businesses - notification of uncertain tax treatment

Following an initial consultation in March 2020 and a second consultation in March 2021, the government is introducing new rules on the requirement for large businesses to notify HMRC when they take an uncertain tax position. The aim of the notification regime is to ensure that HMRC is aware of all cases where a large business has adopted a treatment that is contrary to HMRC’s known position and to bring forward the point at which discussions occur in relation to the tax treatment, thereby reducing what the government refer to as the ‘legal interpretation tax gap’.

The new provisions include the following:

  • the requirement to notify will only apply to relevant companies, partnerships and LLPs that exceed the threshold for being large. The regime will apply to UK resident entities and to non-UK resident entities that have a UK presence (for example, an overseas company with a UK permanent establishment)

  • the threshold for what is a large business, and therefore within scope of the notification measure, is modelled on the Senior Accounting Officer (SAO) regime. Broadly, this means businesses that have a turnover above £200 million and/ or a gross balance sheet total above £2 billion in the previous financial year are subject to the requirement to notify. The turnover and balance sheet amounts relate only to the UK presence of the business and, similar to the SAO rules, there are specific provisions around aggregating turnover and balance sheet totals for group companies

  • the scope of the regime will initially be restricted to corporation tax, VAT and income tax including amounts collected via PAYE. Corporation tax for these purposes does not include the banking surcharge, bank levy or amounts due under the controlled foreign companies legislation

  • a list of relevant returns in relation to each tax covered by the regime is provided. A separate notification is required for each relevant tax where a relevant return is filed that includes an uncertain amount (including where the amount is nil). Where a relevant return includes more than one uncertain amount, only one notification is required covering each such amount. For annual returns, the deadline for notifying is the same as the filing date for the relevant return. For returns that are not annual, the notification is required on or before the date on which the last relevant return for the financial year in question is due

  • a tax treatment will be uncertain if it meets one of three tests (reduced from seven from the second consultation stage). Broadly, the tests cover where a provision has been made in the business’s accounts under GAAP in respect of an uncertain tax outcome, where the position taken represents a divergence from HMRC’s known position, and where there is a substantial possibility that a tribunal or court would rule against the position taken by the taxpayer

  • a threshold test of £5m applies in relation to an uncertain amount included in a relevant return, below which taxpayers are not required to notify. Under the test, it is only necessary to notify where the net value of the tax advantage which results from the uncertain tax treatment amount (and any related amounts) when compared with the relevant expected amount is more than £5 million in the relevant period. Tax advantage and relevant period are defined separately for each tax

  • a general exemption applies from the requirement to notify where it would be reasonable to conclude that HMRC is already aware of the uncertainty and already have all, or substantially all, of the information that would be required in a notification. Other exemptions and exceptions are also available, including a specific exemption from the requirement to notify in relation to transfer pricing adjustments

  • an initial £5,000 penalty applies for a failure to notify with escalating penalties for repeated failures. No penalty will arise if the taxpayer has a reasonable excuse and it will be possible to appeal any penalty charged by HMRC

The changes will have effect for returns within scope that are due to be filed on or after 1 April 2022.

The government has published a summary of responses to the second consultation, alongside a policy paper, draft legislation and explanatory notes. The draft legislation is in clause 1 of and Schedule 1 to the Draft FB 2022.

For more on administrative responsibilities for major corporates see Simon’s Taxes D1.1326.

Clamping down on promoters of tax avoidance

Although grouped together as provisions relating to ‘promoters of tax avoidance’, the draft legislation released on Legislation Day has a wider application than just the promoters of tax avoidance schemes (POTAS) regime and follows the March 2021 consultation.

The expected changes are part of HMRC’s drive to stop tax avoidance schemes at the earliest possible stage, ideally before a taxpayer uses the scheme in the first place. They should be considered in the context of the changes to the various anti-avoidance regimes introduced by FA 2021, as these are part of the same aim.

The proposed legislative changes are:

  • a new power for HMRC to seek freezing orders that would prevent promoters from dissipating or hiding their assets before paying the penalties that are charged as a result of them breaching their obligations under various anti-avoidance regimes

  • new legislation that would enable HMRC to publish details of suspected tax avoidance schemes and those suspected of being associated with them, in order to better inform taxpayers of the risks of relevant schemes, so that they can identify and steer clear of the schemes or exit them

  • new rules that would enable HMRC to make a UK entity that facilitates the promotion of tax avoidance by offshore promoters subject to a significant additional penalty

  • a new power to enable HMRC to present winding-up petitions to the Court for bodies operating against the public interest

Each of these provisions is discussed further below.

Freezing orders

This provision is expected to apply to any person against whom HMRC has commenced (or intends to commence within 72 hours) proceedings to charge a penalty:

  • for the failure to comply with an obligation under the disclosure of tax avoidance scheme (DOTAS) regime

  • for the failure to comply with an obligation under the disclosure of tax avoidance scheme; VAT and other indirect taxes (DASVOIT) regime

  • for the failure to comply with an obligation under the POTAS regime

  • under the enablers of defeated tax avoidance rules

Draft FB 2022, cl 1(1)(a), (4), (5)

Under this new power, HMRC could apply to the Courts for an order to freeze the assets of the person before the penalty is charged. To grant the order, the Court must be satisfied that HMRC has a good case in relation to the penalty. If HMRC has yet to commence penalty proceedings and fails to do so within 72 hours of the order being granted, the freezing order does not take affect. In determining the 72 hour deadline, weekend days and bank holidays are disregarded. Draft FB 2022, cl 1(1), (3), (5), (6)

HMRC is already able to apply for a freezing order under existing law where there is an enforceable debt and there is a risk that assets will be hidden or moved. The point of the new provision is to allow for the assets to be frozen in advance of the penalty being charged. TIIN: New proposals to clamp down on promoters of tax avoidance, ‘Current law’

If enacted as drafted, this provision could be applied in relation to any person to whom a penalty (listed above) is determined on or after the date of Royal Assent to FB 2022. TIIN: New proposals to clamp down on promoters of tax avoidance, ‘Operative date’

Publication of suspected tax avoidance schemes

New rules are expected to allow HMRC to publish details of suspected tax avoidance schemes and any person suspected of making the scheme available to taxpayers. HMRC will be able to publish any information that the Officer considers appropriate for the purpose of informing taxpayers of the risks associated with the scheme or protecting the public revenue. Draft FB 2022, cl 2(1), (2)

HMRC currently has multiple powers to publish details of tax avoidance schemes and their promoters under the POTAS, DOTAS and DASVOIT regimes. Due to changes introduced by FA 2021, HMRC can also publish details of suspected tax avoidance schemes and suspected promoters, however this proposed power widens the pool of persons whose identity can be published in connection with the suspected tax avoidance scheme.

Under this power, as well as the suspected promoter, HMRC could also publish the details of any person who it suspects:

  • ‘controls’ or has ‘significant influence’ over the promoter as defined for the purposes of the POTAS regime, see Simon’s Taxes A7.302

  • is an employee of the promoter

  • is an office holder within the promoter

  • is a shareholder of the promoter

  • has or has had any other role in relation to making the proposal or arrangements available (which has wide application and may include persons such as introducers, finance providers etc)

  • in the case of a proposal or arrangements that involve a trust, a settlor, trustee or beneficiary of the trust, or other person involved in the administration of the trust

Draft FB 2022, cl 2(2), (11)

HMRC must notify the person that it intends to publish their details and give them 30 calendar days to make representations that their information should not be published. In making the decision as to whether to publish the person’s details, HMRC must take these representations into account. Draft FB 2022, cl 2(5), (6)

When considering the meaning of ‘suspicion’ for the purposes of this new power, it is worth taking into account HMRC’s recent guidance on the FA 2021 changes to the POTAS regime. In that guidance, HMRC states that the threshold for suspicion is low and quotes the Court of Appeal as saying a person suspects something if they ‘think that there is a possibility which is more than fanciful that the relevant facts exist’. Draft HMRC guidance, Section A, para 1.2.5; R v Da Silva [2006] 4 All ER 900.

This provision is expected to become effective from the date of Royal Assent of FB 2022. TIIN: New proposals to clamp down on promoters of tax avoidance, ‘Operative date’

Additional penalty for UK facilitators of offshore promoters

Some tax avoidance schemes are promoted by non-resident promoters using UK intermediaries. Although offshore promoters are subject to the various anti-avoidance regimes, in practice they tend to ignore their obligations, and so the existing rules attribute their obligations to other persons (eg UK resident employees, UK resident facilitators, scheme users). Those other persons are liable to penalties if they fail to comply with the obligations.

HMRC wishes to further disincentivise UK resident facilitators from acting as the intermediary between the offshore promoter and the client. Therefore, it proposes to charge an additional penalty on the UK resident person where that person has either:

  • incurred a penalty under the enablers of defeated tax avoidance rules, see Simon’s Taxes A4.573A, or

  • incurred penalties of £100,000 or more in relation to the failure to comply with one or more obligations under DOTAS, DASVOIT or POTAS.

Draft FB 2022, cl 3, Sch 1, para 1(1), (3), (4)

For these original penalties to trigger an additional penalty, the UK resident and the offshore promoter must be part of the same ‘promotion structure’ and the original penalties must be charged on the UK resident in relation to their activities regarding the proposals/arrangements promoted by the offshore promoter. ‘Promotion structure’ is as defined for the POTAS regime, see Simon’s Taxes A7.301A. Draft FB 2022, cl 3, Sch 1, paras 1(2), 8(1)

The amount of the penalty is up to 100% of the total fee received by all the members of the ‘promotion structure’ in relation to the scheme. Draft FB 2022, cl 3, Sch 1, para 2

The draft legislation applies HMRC’s information powers under FA 2008, Sch 36 to allow HMRC to check whether the person should be liable to this additional penalty. Draft FB 2022, cl 3, Sch 1, para 6

If enacted as drafted, this provision would apply to any UK resident person that incurs the original penalties on or after the date of Royal Assent of FB 2022. Where the original penalty is charged under the enablers of defeated tax avoidance rules, this penalty must relate to arrangements enabled on or after Royal Assent. TIIN: New proposals to clamp down on promoters of tax avoidance, ‘Operative date’

Winding-up petitions

HMRC is expected to be given the power to petition the Court to wind-up a ‘relevant body’ if this is expedient in the public interest for the purpose of protecting the public revenue. The Court may wind-up the ‘relevant body’ if it is of the opinion that it is just and equitable to do so. Draft FB 2022, cl 4(1)–(3)

A ‘relevant body’ means a body, including a partnership, that:

  • carries on a business as a promoter for the purposes of the POTAS regime (bearing in mind that the definition was greatly expanded by FA 2021). See Simon’s Taxes A7.301A. Note that the draft legislation makes it clear that this also applies to promoters of indirect tax avoidance schemes (since the POTAS regime has limited application to indirect taxes), or

  • is ‘connected’ to a body caught by the bullet point above, where ‘connected’ is defined as under CTA 2010, s 1122. See Simon’s Taxes A1.156

Draft FB 2022, cl 4(4)

In the case of a partnership, Insolvency Act 1986 has effect as if the partnership were an unregistered company. Draft FB 2022, cl 4(5)

The terms ‘expedient in the public interest’ and ‘protecting the public revenue’ are not defined and it is unclear as to whether these will represent sufficient safeguards.

If enacted as drafted, this provision could be applied to any relevant body involved in promoting or enabling tax avoidance and operating against the public interest on or after the date of Royal Assent of FB 2022. Note that any information, non-compliant behaviour or ongoing action by HMRC or any other organisation prior to Royal Assent would be taken into account by the Courts in considering the winding-up petition. TIIN: New proposals to clamp down on promoters of tax avoidance, ‘Operative date’

For more on the POTAS regime see Simon’s Taxes A7.301.

Other Publications

Calls for evidence, consultation responses & research

The following calls for evidence and consultation responses were also published on 23 March 2021:

  • modernisation of the stamp taxes on shares framework: following a call for evidence published in July 2020 on the principles and design for a new framework for stamp duty and stamp duty reserve tax (collectively stamp taxes on shares), the Government has published a summary of responses, confirming that it is committed to continuing to explore modernisation and will consider the feasibility and implications arising from the key priority areas identified by respondents. These include a single self-assessed tax on shares, territorial scope and digitisation. Stakeholders are invited to join a working group to help inform the development of future policy. Anyone interested in being part of the group should email sts.consultation@hmrc.gov.uk with their contact details by 10 September 2021.

    The summary of responses document also mentions that the government has already taken action on one of the most requested changes-the temporary COVID-19 electronic stamp duty process has already been made permanent and the physical stamp presses have already been retired. The process allows for electronic notification and the issue by HMRC of a confirmation letter rather than physical stamping of the document and there is no requirement to resubmit instruments processed in this way since March 2020.

  • VAT and value shifting: a call for evidence ran from 5 January 2021 to 30 March 2021 and sought evidence on proposed revisions to rules for apportioning consideration between supplies with mixed liabilities in a single transaction (to address what HMRC perceived to be exploitation of current provisions). Many stakeholders expressed concerns over the proposals set out in that consultation and HMRC confirmed in its summary of responses on Legislation Day that it was continuing to actively engage with these stakeholders to gain a ‘fuller understanding’ of views on the proposals. Respondents to the consultation have been contacted directly but HMRC has indicated that it would also like to engage with other stakeholders to establish more views on the proposals. This is despite the fact that the initial consultation stated that the ‘broad principles’ of the proposed legislation were set. See: VAT and value shifting: summary of responses

  • impact of Making Tax Digital for VAT: a report was prepared for HMRC by IFF Research (a market research provider) on the impact of Making Tax Digital (MTD) for VAT. A quantitative study was undertaken by IFF which comprised 2,005 interviews with a random sample of businesses for whom the MTD for VAT rules were mandatory. A number of key themes were identified. Changes were identified in record-keeping behaviour with more businesses using software and/or apps in record keeping and an increase in the proportion of businesses updating records on a continuous basis. However, there was still a significant portion of businesses not using fully MTD compatible software. The report also examined the costs of MTD for VAT to businesses and perceived benefits (for example just over half of respondents reported MTD had sped up the preparation and submission of VAT returns). See: Impact of Making Tax Digital for VAT

  • VAT Grouping - Establishment, Eligibility, and Registration: a call for evidence, which ran from 28 August to 20 November 2020, sought evidence on the establishment provisions, compulsory VAT grouping and grouping eligibility criteria for businesses currently not in the existing legislation. The government has now published a summary of responses and reiterated the announcement made in the Tax Policies and Consultations paper on 23 March 2021 that it has decided not to take this any further. See VAT Grouping - Establishment, Eligibility, and Registration Call for Evidence for more information

  • VAT and the Public Sector: Reform to VAT Refund Rules: the government believes that there is a strong case to reform VAT refunds under VATA 1994, s 41 and had previously published a paper setting out HM Treasury/HMRC internal thinking on how to improve public sector VAT refund rules which invited comments to help refine the policy. The consultation period ran from 27 August to 19 November 2020. The government also sought views on the advantages and disadvantages of reforming the way VAT incurred by public bodies in respect of non-business activities is refunded, and the options for implementation of any reform. The government has now published a summary of responses, noting that the responses received illustrate a range of views and concerns. The stakeholders were in favour of reform to the s 41 refund scheme, with the majority of respondents supporting the Full Refund Model (FRM) as the model for reform. However, the responses also identified several specific areas that need to be considered when designing any potential reform. See VAT and the Public Sector: Reform to VAT Refund Rules for more information

  • VAT and the Sharing Economy: a call for evidence, which ran from 9 December 2020 to 31 March 2021, sought evidence to test the government’s view of the VAT challenges the sharing economy creates. The government has now published a summary of responses, noting that the responses received illustrate a range of views and concerns. The vast majority of respondents indicated that any reform should follow international best practice where possible. With regard to supplies cross-border B2B supplies of services, the majority of respondents were supportive of some form of technical change to ensure VAT is collected where intended. Respondents were also in favour of using increased data sharing and reporting between platforms and tax authorities in order to improve transparency and VAT compliance. See VAT and the Sharing Economy: Call for Evidence for more information

  • plastic packaging tax: this tax is being introduced from April 2022 and primary legislation was included in Finance Act 2021. The government has published draft regulations for consultation, to remove three categories of product from the meaning of a plastic packaging component and add a further category of product. See Draft statutory instruments, explanatory memorandum and technical note and Policy paper on introduction of plastic packaging tax

Future developments

The Written statement to parliament from Jesse Norman MP, Financial Secretary to the Treasury, lists three further policy announcements which will be legislation in the autumn:

  • London Capital & Finance compensation payments: payments made by the London Capital & Finance compensation scheme will not be subject to Capital Gains Tax (and anything received in relation to a bond held in an ISA can return the compensation payment to the ISA without affecting the ISA limits), applying retrospectively from the time the payments were made

  • Scottish social security payments: payments made under the Child Winter Heating Assistance (introduced in November 2020) and the Short-Term Assistance (introduced in July 2021) will not be subject to income tax, applying retrospectively

  • Covid winter scheme payments: payments made by local authorities under the Covid Winter Grant Scheme and Covid Local Grant Scheme (and equivalent devolved schemes) will not be subject to income tax, applying retrospectively to all payments made from 2020–21 onwards

What was not published?

There are a number of areas on which we might have expected a development but none was published. These include:

  • the review of the corporation tax surcharge on banking companies that was announced at Spring Budget 2021

  • the consultation on the taxation of securitisation companies that closed on 3 June 2021

  • the consultation on raising standards in the tax advice market that closed on 1 June 2021-we understand that responses and draft legislation will be published later this year

  • the consultation on hidden economy conditionality in Scotland and Northern Ireland that closed on 5 July 2021, and

  • the possible expansion of the dormant asset scheme, which was announced on Tax Day (23 March 2021)

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