Finance Bill 2020-21: Draft Legislation and Tax Documents

In line with the tax policy making framework, the Government are publishing draft legislation to be included in the Finance Bill 20-21, to allow for technical consultation and provide taxpayers with predictability over future tax policy changes.

Alongside this, the Government are making announcements on tax administration, business rates, and a number of other areas of tax policy. The Government are also publishing a number of previously announced tax policy documents. Measures that come into effect immediately or retrospectively are previously announced, or are technical amendments to ensure legislation works as intended.

As announced on 28 April, the Government have extended the consultation periods for plastic packaging tax, R&D SME Tax Credit PAYE cap, construction industry scheme abuse, and notification of uncertain tax treatment by large businesses in response to the covid-19 outbreak. As a result of this extension, the Government will publish the draft legislation for these measures later in the autumn.

The Government are announcing a roadmap for making tax digital, alongside their long-term plans for tax administration reform. These reforms are intended to make it easier to pay tax due, enhance resilience, effectiveness, and support for taxpayers.

The Government are publishing a document setting out their vision for a trusted, modern tax administration system that is fit for the 21st century and keeps pace with the many countries already operating digital tax regimes. This sets out an ambition for the tax system to work closer to real-time, improving its resilience, effectiveness and support for taxpayers.

The Government are committed to delivering a modern tax service for the UK’s increasingly digital businesses and their agents.

Digital tools and services can make it easier for businesses to keep on top of their tax affairs, and improve their productivity. Independent research commissioned by HMRC shows that businesses within MTD which fully integrate their accounting and tax software report spend less time on their tax. Micro-businesses who use software to manage their accounts have over 10% higher productivity, according to the Enterprise Research Centre.

Digital tools also reduce the scope for avoidable errors which cost the Exchequer £8.5 billion in lost revenue in 2018-19, and make the tax administration system less burdensome for those taxpayers who want to do the right thing.

The covid-19 pandemic has also highlighted the need for a more flexible, resilient and responsive tax system that provides businesses and HMRC with more up-to-date information on businesses and their finances, and enables easier identification and better targeting of taxpayer support.

The Government are therefore announcing a roadmap for HMRC’s Making Tax Digital programme. Since April 2019, most VAT-registered taxpayers with a turnover above the VAT threshold have needed to operate Making Tax Digital for their VAT returns, keeping their records digitally and updating HMRC through secure software. Over 1.4 million taxpayers are successfully using this system. This includes over 30% of VAT-registered businesses with turnover below the VAT threshold who have joined voluntarily. The Government will introduce legislation in Finance Bill 2020-21 to extend Making Tax Digital for VAT to all businesses below the VAT threshold from April 2022, to ensure every VAT-registered business takes the step to move to a modern, digital tax service.

The Government remain committed to extending Making Tax Digital to other taxes. The Making Tax Digital programme will therefore be extended through new regulations to businesses and landlords within income tax self-assessment from April 2023. This timetable allows businesses, landlords and agents time to plan, and gives software providers enough notice to bring new Making Tax Digital products to market, including free software for businesses with the simplest tax affairs. HMRC will expand its pilot service from April 2021 to allow businesses and landlords to test the full end-to-end service before the requirement to join.

The Government will also consult in the autumn on the detail of extending Making Tax Digital to incorporated businesses with Corporate Tax obligations.

A consultation response will be published setting out how the Government will amend HMRC’s civil information powers, to ensure the UK can continue to comply with international tax transparency standards.

The Government have made a number of further policy decisions which are being announced today, relating to:

Business rates revaluation

Under current legislation, the next revaluation would take effect on 1 April 2022 based on pre-covid-19 property values as of 1 April 2019. In May 2020, the Government announced a postponement to provide greater certainty for firms affected by the impacts of covid-19.

The Government are today announcing that the next revaluation of non-domestic property in England will instead take effect on 1 April 2023. So that it better reflects the impact of covid-19, it will be based on property values as of 1 April 2021.

Small brewers relief

The Government have concluded their review of this relief. In order to support growth, boost productivity and remove “cliff-edges”, the scheme’s taper will be smoothed. It will take effect more gradually over a wider range of production, starting at 2,100 hectolitres per year, and be converted to a cash basis. A technical consultation will be brought forward in the autumn. The Government will also consult on the potential for a grace period for small breweries that decide to merge.

Post-EU exit alcohol review

The Government recognise the need to reform the current duty system to support the alcoholic drinks and pubs sector in the longer term, and will publish a call for evidence before end September 2020.

Tackling promoters of tax avoidance

Tackling promoters of tax avoidance—The Government are publishing a consultation and draft legislation on further, tougher measures to tackle those who promote and market tax avoidance schemes, as announced at spring Budget. This builds on the anti-avoidance regimes that have already been introduced by the Government, which have helped to reduce the avoidance tax gap from £3.7 billion in 2005 to 2006 to £1.7 billion in 2018 to 2019. The Government will bring forward further ambitious proposals in the autumn to strengthen their response to promoters who seek to sidestep the rules.

Employee share ownership

Enterprise Management Incentives (EMI)—The Government will legislate in Finance Bill 2020-21 to ensure that employers can issue new EMI share options to individuals who have been furloughed, have taken unpaid leave or have had their working hours reduced below EMI’s current statutory working time requirement as a result of covid-19.

The Government have published the following tax policy documents, previously announced at the spring Budget:

The business rates review call for evidence.

The call for evidence on pensions tax administration.

The consultation on the design of a carbon emissions tax.

The consultation on national insurance contributions holiday for employers of veterans.

The consultation on whether qualifying R&D tax credit costs should include investments in data and cloud computing.

The consultation on the economic crime levy.

The summary of responses to the call for evidence on the operation of insurance premium tax.

The summary of responses and Government next steps to the aggregates levy review.

The summary of responses to the non-UK resident SDLT surcharge consultation.

For other consultations, the Government are continuing to consider the responses and will respond in due course.

In addition, the Government are publishing a small number of technical tax changes, which are previously announced or provide technical easements for policy. These include measures relating to:

Changes to termination payments rules, post-employment notice pay (PENP) calculation at s. 402D(1) ITEPA 2003, and amendment of s.27 ITEPA 2003—Changes to current PENP calculation to avoid unfair outcomes if an employee’s pay period is defined in months, but the contractual notice period is expressed in weeks, and changes to ensure non-residents who receive PENP are taxed fairly.

The Government have published legislation for the following measures that will have immediate or retrospective effect:

Corporate interest restriction amendments—The first amendment clarifies the way special provisions apply for real estate investment trusts; this comes into force today. The second amendment ensures that no penalties arise for the late filing of an interest restriction return where there is a “reasonable excuse”; this applies from 1 April 2017 when the CIR rules commenced.

Enterprise Management Incentives (EMI) amendments—This legislation will apply retrospectively from 19 March, and is in addition to protecting existing EMI share options holders from the effects of covid-19, as legislated for in the Finance Act 2020, previous Finance Bill.

Annual Tax On Enveloped Dwellings—This measure introduces a new relief from the annual tax on enveloped dwellings (ATED) for housing co-operatives, those which are not publicly funded providers of social housing, which own UK residential property valued in excess of £500,000. The measure will come into effect retrospectively from 1 April 2020, allowing eligible housing co-operatives to claim a refund for the 2020-21 chargeable period.

In addition to these policy announcements, consultations and technical amendments, the Government are publishing draft legislation as announced at the spring Budget:

Benefit charge

Collective money purchases pension schemes

S4C Section 33 VATA

Conditionality: hidden economy

Draft legislation is accompanied by a Tax Information and Impact Note (TIIN), an Explanatory Note (EN) and, where applicable, a summary of responses to consultation document. All publications can be found on the www.gov.uk website. The Government’s tax consultation tracker has also been updated.

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