Tax changes outlined in draft Finance Bill 2020 – 2021

The Government has unveiled its draft legislation for the 2020 – 2021 Finance Bill (the Bill). The new proposals cover a number of measures that were previously announced in the 2020 Spring Budget.

To help you gain a greater appreciation for potential tax changes on the horizon, we have prepared a summary of some of the key measures outlined in the Bill:

SDLT surcharge for non-UK residents – This new surcharge will add an additional two per cent to all residential rates of Stamp Duty Land Tax (SDLT) where a non-UK buyer purchases residential property in England and Northern Ireland.

This new surcharge will be added to the existing additional surcharges, such as the three per cent surcharge for ‘additional homes’, and will take effect from 1 April 2021.

It will apply to UK residential transactions involving non-resident:

  • individuals
  • unit trusts
  • partnerships
  • corporate entities
  • beneficiaries under life-interest
  • bare trusts and trustees of other types of trust.

This will primarily affect overseas individuals purchasing residential property. However, overseas corporates that bulk-buy residential property will, in most cases, no longer benefit from claiming for multiple dwellings relief, which results in the residential rates applying in place of the bulk-buy commercial rates.

Corporate interest restriction (CIR)  The Bill aims to amend two technical points so that the existing CIR rules work as intended.

The first amendment relates to how the CIR rules interact with the UK real estate investment trust (REIT) rules and deal with potential issues regarding the allocation of a CIR disallowance, where a non-UK company is within the charge to UK Corporation Tax (CT) in respect of a UK property business but its residual business is not within the scope of CT.

The other amendment ensures that no penalties will arise for the late filing of an interest restriction return if there is a reasonable excuse.

New reliefs for housing co-operatives – The draft legislation in the Bill also relieves qualifying housing cooperatives, such as organisations that are neither publicly funded nor social housing cooperatives, from the 15 per cent ‘envelope’ rate of SDLT and the charge to the annual tax on enveloped dwellings (ATED).

The relief for the ATED will be applied retrospectively from 1 April 2020, while the SDLT relief will be introduced following the Autumn Budget later this year.

Amendments to HMRC’s civil information powers – New legislation will give HMRC powers to issue a ‘Financial Institution Notice’, that requires organisations, such as banks, to provide information about a specific taxpayer when requested.

This law will do away with the need for approval from an independent tax tribunal.

The Bill also includes a series of amendments to existing legislature aimed at tackling promoters and enablers of tax avoidance.

Alongside the Bill, the Government also launched several important consultations including:

Business rates review – HM Treasury will carry out a wide-ranging review of the business rates system, including a consideration of the strengths and weaknesses of the current system and the introduction of alternatives, such as dedicated property and online sales tax schemes.

R&D qualifying expenditure – HM Treasury will explore whether the scope of qualifying expenditure could be expanded to include data and cloud computing costs. However, the consultation also asks whether other qualifying expenditure should be restricted as a result to make the tax relief fairer.

Link: Finance Bill 2020-21

Coronavirus Business Interruption Loan Scheme expanded to more businesses

Following a change in EU state aid rules, the Government has announced that it will expand the Coronavirus Business Interruption Loan Scheme (CBILS) to certain businesses classed as “undertakings in difficulty” – those with large losses and debts. The UK remains subject to EU state aid rules during the Brexit transition period.

The change means that businesses in this position with fewer than 50 employees and a turnover below £9 million can apply for a loan under the scheme.

CBILS was announced by the Chancellor during the Budget in March and enables businesses with a turnover of up to £45 million to borrow between £1,000 and £5 million, with the Government meeting the cost of interest for the first 12 months.

To date, more than 57,000 businesses have benefited from £12.6 billion in support from CBILS.

Chris Wilford, Head of Financial Services Policy at the CBI, said: “This is an important step that will help more businesses get the critical support they need. These eligibility hurdles have been a real stumbling block for many firms across the UK throughout the crisis. These were put in place to avoid governments bailing out failing companies, but those rules were established in normal times.

“They have had a real impact on the ability of some high-growth firms and those with more complex structures being able to access the loan schemes. More jobs and livelihoods will now be saved.”

Link: More businesses set to benefit from government loan scheme

VAT treatment of imported goods up to £135 to change under new rules

VAT on imported goods with a value of up to £135 will be collected at the point of sale, not the point of importation from 1 January 2021.

New guidance has been issued by HM Revenue & Customs (HMRC) which outlines how it anticipates the import of goods from outside the UK below this value to be treated for VAT after the transition period ends.

From the start of next year, this change on where VAT is collected will mean that UK supply VAT, rather than import VAT, will be due on consignments of £135 or less.

Under HMRC’s rules, online marketplaces that facilitate the sale of imported goods will be responsible for collecting and accounting for VAT, including when the goods are located in the UK at the point of sale.

If goods are sold and sent directly to the UK from overseas, then the overseas seller will be required to register and account for the VAT to HMRC. The rules also require overseas sellers to account for the VAT on goods in the UK when sold directly to UK consumers.

There will also be a change for imports of goods by UK VAT-registered businesses not covered by HMRC’s new guidance at the start of next year.

Businesses in this category will be permitted to use postponed VAT accounting rules, allowing them to declare and recover import VAT on the same return, rather than making a payment upfront and being forced to recover VAT later. This change is subject to normal VAT recovery rules.

Further details of the changes to VAT treatment on imported goods once the transition period ends can be found by clicking here.

Link: Change to VAT treatment of overseas goods

HM Revenue & Customs publishes Job Retention Bonus guidance

HM Revenue & Customs (HMRC) has published guidance setting out how the Job Retention Bonus will operate.

The Job Retention Bonus was announced by the Chancellor at the Summer Economic Update on 8 July 2020 and will provide employers with a one-off payment of £1,000 for each previously furloughed employee continuously employed to 31 January 2021.

Eligible employees who return from furlough under the Coronavirus Job Retention Scheme (CJRS) must be paid £520 a month on average between 1 November 2020 and 31 January 2021 and receive earnings during each of November, December and January.

Employers will be able to claim the payment after they have filed for PAYE in January 2021, with payments expected from February 2021 onwards.

HMRC says employers must ensure they have:

  • complied with their obligations to pay and file PAYE accurately and on time under the Real Time Information (RTI) reporting system for all employees
  • maintained enrolment for PAYE online
  • a UK bank account.

Additionally, employers must ensure their payroll and RTI records are up to date and must co-operate with HMRC requests for information about their CJRS claims.

Where HMRC considers that CJRS claims may have been fraudulent or inflated, payments will be withheld until the conclusion of any enquiry.

Detailed guidance on the earnings that count towards the £520 a month average minimum earning threshold is expected to be published in September 2020.

The new guidance also confirms that the payment will be taxable.

HMRC advises that employers wishing to claim the bonus should ensure that their employee records are up to date and that they are reporting employees’ details and wages on the Full Payment Submission (FPS) through RTI submissions.

Link: Job Retention Bonus

Small business Covid recovery boosted by £20million in new grants

The Government has announced new grants aimed at smaller businesses in England worth £20 million, to help them obtain the support they need to recover from the effects of the Coronavirus pandemic.

Under the new scheme, small and medium-sized businesses will be able to obtain grants of between £1,000 – £5,000 that can be used to help them gain access to new technology and equipment and/or professional, legal, financial, or other advice, including additional support from an accountant.

The grants on offer will be fully funded by the Government and businesses that use the funding will have no obligation to provide financial contributions.

The funding has been allocated through the England European Regional Development Fund (EERDF) and will be distributed through Growth Hubs, embedded in local enterprise partnerships (LEPs) across England.

The Government will set a minimum of £250,000 for all LEP areas and the allocation of resources will be further reviewed as the grant fund is delivered.

Further details of how businesses can apply for this funding are expected soon.

Link: £20 million in new grants to boost recovery of small businesses

HM Revenue & Customs sets out Making Tax Digital plans for VAT and Income Tax

HM Revenue & Customs (HMRC) has set out its plans for the future of the Making Tax Digital (MTD) programme, with confirmation of the timeline for the expansion of MTD for VAT and the introduction of MTD for Income Tax.

Since its introduction in April 2019, MTD for VAT has required most VAT-registered businesses with a turnover of £85,000 or more to keep digital records and to make VAT returns using HMRC-compatible software.

HMRC has now confirmed that all VAT-registered businesses will be subject to the rules from April 2022.

Meanwhile, HMRC has also confirmed that similar requirements will apply in respect of Income Tax for unincorporated businesses and landlords with gross incomes of £10,000 or more from April 2023.

Those affected will be required to make quarterly digital submissions setting out their income and expenses using HMRC-compatible software.

They will then receive estimated tax calculations, designed to make budgeting for tax bills easier than it is at present. Following the end of the year, they will be able to submit details of other income, with the intention that digital reporting will eventually replace self-assessment tax returns.

The move will not mean more frequent tax payments, although that could change in the future.

The Government has also confirmed that it will consult in the autumn on plans to extend MTD to cover Corporation Tax for companies.

Link: Roadmap announced for Making Tax Digital