Draft legislation for Finance Bill 2020-21 and other announcements on 21 July 2020

Draft legislation for Finance Bill 2020-21 and other announcements on 21 July 2020

Wed 22 Jul 2020

The Government has released draft legislation and supporting documents for Finance Bill 2020/21 for consultation until 16 September 2020.  There were also some new consultations and ‘calls for evidence’ announced.   

Included in the ministerial statement dealing with these matters was an announcement on the extension of making tax digital (MTD).  The extension will mean the following:

  • From April 2022, the programme (MTD for VAT) will be extended to all VAT registered businesses with turnover below the VAT threshold (£85,000);
  • From April 2023, MTD will apply to taxpayers who file income tax self-assessment tax returns for business or property income over £10,000 annually;
  • There will be an Autumn consultation on the detail of extending MTD to incorporated businesses with Corporate Tax obligations.

There is further detail on the MTD extension from HM Treasury and HMRC.  There is also a publication on ‘Building a modern trusted tax administration system’ setting out a ten year strategy.  It indicates discussions with key stakeholders will take place over the summer on plans to develop this system.

These are important developments, but it is clear the major announcements on tax have been left to the Autumn Budget.

To discuss the implications for you and your business of any of the points arising from these announcements, please get in touch with your usual Mazars contact or a member of the Mazars Tax team.

The Finance Bill 2020/21 measures announced are as follows:

Income tax

  • Changes to the treatment of termination payments and post-employment notice pay (PENP) for Income Tax.  This measure refines the way tax is levied on termination payments for those employees whose pay period is defined in months, but their contractual notice period or post-employment notice period is not a whole number of months.  It also aligns the tax treatment of PENP for individuals who are non-resident in the year of termination of their UK employment with the treatment for all UK residents. Currently, PENP is not chargeable to UK tax if an employee is non-resident for the tax year in which their employment terminates.  It will apply to those individuals who have their employment terminated, and where the termination payment is received on or after 6 April 2021.
  • Income Tax changes to the van benefit charge from 6 April 2021 This measure amends existing legislation to reduce the van benefit charge (VBC) for zero emissions vans to £nil. VBC for zero-rated vans is currently a proportion of the flat-rate charge payable by an employee provided with a company van by their employer that can be used privately, except for what is substantially ordinary commuting.  It will have effect on or after 6 April 2021.
  • Pension schemes: collective money purchase benefits.  This measure will enable collective money purchase pension schemes to operate as UK registered pension schemes, in the same way that existing UK registered pension schemes can operate
  • Changes to working time requirements for Enterprise Management Incentives.  Finance Bill 2020 introduced a time-limited exception to the disqualifying event rules so that existing participants of EMI schemes are not forced to exercise their options much earlier than planned. The proposed new FA 2020 s107 extends the time-limited exception to new EMI share options granted on or after 19 March 2020. The modifications take effect from 19 March 2020 and will come to an end on 5 April 2021.

Corporation tax

  • Technical amendments to the Corporate Interest Restriction for Corporation Tax.  The CIR legislation will be amended to:
    • Clarify the way special provisions in the Corporate Interest Restriction rules apply in the context of a Real Estate Investment Trust, to take into account that UK property businesses of non-resident companies are now within the charge to Corporation Tax rather than Income Tax (section 452) – from 21 July 2020.
    • Make sure that no penalties arise for the late filing of an Interest Restriction Return if there is a reasonable excuse for the failure, bringing the administrative rules in line with those for Corporation Tax Self-Assessment (Schedule 7A).  This proposal will be treated as having effect from 1 April 2017.

Stamp Duty land Tax and Annual Tax on Enveloped Dwellings draft legislation

  • New rates of Stamp Duty Land Tax for non-UK residents from 1 April 2021  This measure sets out draft legislation for the additional 2% SDLT charge that will become payable from 1 April 2021 by non-resident purchasers (including UK companies controlled by non-UK persons) of residential property in England and Northern Ireland.  There are specific exclusions from the additional 2% charge for UK REITs and OEICs.  A different non-residence test applies to individuals for SDLT compared to income tax (so, for example an individual may be UK tax resident for income tax, but not UK resident for SDLT).  A company that is not an excluded company, but that is within the charge to UK corporation tax, and that is controlled by a non-UK company will be regarded as non-UK resident for SDLT purposes and therefore subject to the additional 2% charge.
  • New reliefs from Annual Tax on Enveloped Dwellings and Stamp Duty Land Tax for housing co-operatives.  This measure sets out draft legislation for an ATED exemption for housing cooperatives that are not registered providers of social housing.

VAT draft legislation

Anti-avoidance legislation

  • New proposals for tackling promoters and enablers of tax avoidance schemes.  These proposals aim to: enable HMRC to issue ‘stop notices’ more effectively; prevent promoters from abusing corporate entity structures to avoid their obligations under the POTAS rules; assist HMRC in obtaining information sooner on abusive arrangements; assist HMRC to act quickly and decisively where promoters fail to provide information on their avoidance schemes under DOTAS; makes further technical amendments to improve the effectiveness of the rules affecting promoters of tax avoidance schemes.

Other legislation

  • New tax checks on licence renewal applications This measure introduces a new tax check for applications to renew some licenses. This will address part of the hidden economy.  The measure will have an effect on applications made from 4 April 2022.
  • Amendments to HMRC’s civil information powers  This measure provides HMRC with new powers to issue a financial institution with a ‘financial institution notice’.  The measure will have effect on and after the date of Royal Assent to Finance Bill 2020-21.

A selection of the consultations or calls for evidence includes:

  • A call for evidence on modernisation of the stamp taxes on shares framework.  This consultation  considers what the principles and design of a new framework for Stamp taxes on shares (STS) should be, and prioritising changes within the overall modernisation programme.   It includes reference to temporary changes to STS processes which have been made as a response to measures put in place to stop the spread of coronavirus (COVID-19).
  • A consultation on an economic crime levy which would be paid by those registered for AML purposes.  The proposal is to raise £100m annually (there are around 90,000 AML registered businesses.  The levy will be set so that those with more activity will contribute more.
  • A call for evidence on business rates.  There is a range of question asked about the way business rates are currently handled.  There are also some questions for comments on ‘capital value tax’ (CVT) as a replacement for business rates.  CVT is considered as one option for replacing business rates.  The ministerial statement defers the next revaluation of non-domestic property in England from 1 April 2022 to 1 April 2023. So that it better reflects the impact of COVID19, it will be based on property values as of 1 April 2021.
  • A consultation on extending the range of costs qualifying for R&D tax relief to data and cloud computing was issued today.  There is also a question on whether the scope of indirect qualifying costs is right.  Comments are requested by 13 October 2020.
  • A call for evidence on pensions tax relief administration.  A low-earning individual’s take-home pay will be affected by the method of pensions tax relief operated by their pension scheme (where they pay no tax).  The consultation looks at four possible alternatives: (1) paying a bonus based on Real Time Information (RTI) data; (2) a standalone charge on Relief at source (RAS) schemes; (3) employers operating multiple schemes; (4) mandating the use of RAS for defined contribution schemes.