The Autumn Budget will be presented by the Chancellor on Wednesday 27 October 2021.
It will be interesting to see what changes to tax will be announced as the Treasury seeks to recoup some of the Covid pandemic support the Government has provided.
There have already been some announcements including the new Social Care Levy in September which means a 1.25% rise in National Insurance contributions (NIC) and dividend tax from 6 April 2022. Also in September, the Government announced a one-year suspension to the triple lock on state pensions, due to the higher rate of average earnings following the pandemic.
As we previously predicted, the Government may consider aligning Capital Gains Tax (CGT) rates with Income Tax rates, and we already know the annual CGT exemption is frozen until 2026. Although an increase in CGT rates may not generate a significant amount of additional tax for the Treasury; if a higher rate was announced to come in say April 2023 it may have the effect of accelerating disposals to benefit from existing lower rates, and therefore a welcome early boost to tax receipts for the Treasury.
With the Chancellor announcing in the Spring Budget that Corporation Tax will increase to 25% from 1 April 2023 for companies with profits greater than £250,000, it is perhaps less likely that any further announcements will be made regarding Corporation Tax.
We could see further technical changes or Inheritance Tax simplifications which may not affect too many taxpayers but could help increase the intake of tax for the Treasury over the coming years. Whatever the outcome next Wednesday, we will consider the content and impact and provide an update shortly afterwards.
It has been announced that the Scottish Budget will follow on Thursday 9 December so we will also keep you up to date with any points of interest impacting Scottish taxpayers.
Making Tax Digital and Basis Period Reform
We have known the basics of making tax digital (MTD) for income tax and the proposed basis period reform for some time and have written about both in our newsletters earlier this year. On 23 September, it was announced that the roll out for both MTD and basis period reform was delayed but it was also confirmed that both will be brought in. Now that we know for certain these will be in our future, we look further at the details.
MTD Quick summary
Following on from our last MTD article in our June newsletter, there are now updates to what we know and the effects this will have.
As a reminder, MTD will only initially affect self-employed individuals and landlords with income over £10,000, including those who are a member of a non ‘complex’ partnership. Quarterly returns will have to be filed at the end of each quarter with a fifth final return submitted after the tax year has ended.
On 23 September 2021 HMRC announced The Income Tax (Digital Requirements) Regulation 2021 which has confirmed it will now be rolled out from 6 April 2024.
The details of this announcement included the proposed start and end dates for quarterly reporting along with the submission deadline dates as follows for those with a tax year end date running 6 April to 5 April:
|Quarter 1||6 April||5 July||5 August|
|Quarter 2||6 July||5 October||5 November|
|Quarter 3||6 October||5 January||5 February|
|Quarter 4||6 January||5 April||5 May|
HMRC is allowing individuals to elect to use a calendar quarters election instead, meaning the reporting quarters will run from 1 April to 31 March. If this election is made the reporting requirements will look like this:
|Quarter 1||1 April||30 June||5 August|
|Quarter 2||1 July||30 September||5 November|
|Quarter 3||1 October||31 December||5 February|
|Quarter 4||1 January||31 March||5 May|
If you would like further information on MTD or are interested in joining the HMRC pilot scheme, please get in touch.
We first discussed basis periods reform in our September newsletter and shortly after HMRC published further information regarding the reform and how this will operate.
How Basis periods currently work
For individuals who operate as a sole trader or as a partner in a partnership, their taxable income from these sources are generally taxed on a 12 month basis (ignoring first year and cessation rules), known as a basis period. Most operate on a tax year end, however, you can currently choose your own start and end date. To determine which tax year the income is taxed in, we look at the end date. For example, a basis period with a year end of 30 June 2021 will be taxed in the 2021/22 tax year.
Basis period reforms
On 20 July HMRC published draft legislation on reforms to the current basis period rules. The changes to these rules do not affect anyone with a basis period that ends on 31 March or 5 April.
The draft legislation will make it that the basis period must have a 31 March or 5 April year end, no matter what the accounting year end is. This means that a trade which has a 31 July year end, for example, will be taxed April-July then August-March/April.
Any overlap relief can be claimed. If any is left after this is claimed, the remainder will be ‘lost’. If there are any additional profits after the overlap claim, the additional amount is eligible for ‘spreading’.
The additional profits due in the first year of these changes will be eligible for ‘spreading’. This allows individuals to spread the profit arising due to the changes over a number of years. This can be done for 2, 3, 4 or 5 years. Once the number of years has been decided, it cannot be altered.
Many things will have to be considered before deciding how many years to spread over, such as retirement planning and personal allowance tapering.
If a basis period is changed before the rules take affect the additional profit that arises will not be eligible for spreading.
Why HMRC want to change the rules
The reasoning for the change is essentially MTD’s quarterly reporting. This change means everyone is reporting their trading profits on the same start date as the first period and the same end date as the last quarterly period.
It also fits HMRC’s aims to simplify and modernise the UK tax system.
The consultation period ended on 31 August with much opposition to the changes. The change to the rules was meant to take effect in the 2022/23 tax year. However, HMRC has since admitted that the administration time and cost of this, and MTD in the current climate, is too onerous for business’ and instead has postponed the changes until April 2024, similar to MTD.
We were initially expecting to see this come into legislation in the Autumn Budget on 27 October, however as the changes have now been delayed by a year, we will likely see this come into legislation at a later date and will keep you posted with any updates or changes to the draft legislation in later newsletters.
If you have any queries regarding the basis period reform, please do not hesitate to get in touch.
HMRC phishing emails, phone calls and texts
Since the start of the pandemic, HMRC have noted a significant increase in the number of people receiving emails, text messages and phone calls from individuals pretending to be HMRC.
HMRC will never send notifications by email about tax rebates or refunds. HMRC advice is to not visit the website (by clicking the hyperlink), open any attachments, or disclose any personal or payment information.
Fraudsters may spoof a genuine email address or change the ‘display name’ to make it appear genuine.
HMRC will never ask for personal or financial information when they send text messages. Do not reply if you get a text message claiming to be from HMRC offering you a tax refund in exchange for personal or financial details. It is also advised not to open any links in the message.
If you are unsure about any emails or texts you receive, HMRC advice is to forward it on to them at firstname.lastname@example.org or text 7726 (it’s free) and then delete it.
If you would like any further guidance regarding the above, please do not hesitate to contact us.