March Tax Tips & News

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Newsletter issue - March 2021

Covid-19

There have been relatively few announcements related to Covid-19 support this month. The only real announcement of note was an amendment to the terms of the Pay As You Grow scheme for repaying Bounce Back loans. Under the revised rules, a borrower will be able to take a six-month repayment holiday without needing to have made any previous instalments. Before the amendment, they would have needed to have made at least six payments before this was an option. Full details are available here.

Self-assessment

A welcome announcement in February confirmed that there would be a relaxation of the self-assessment filing penalties for the 2019-20 round of tax returns. Usually, a 5% tax-geared penalty applies where the tax owed under self-assessment remains unpaid 30 days after the 31 January due date. This year, no penalty will be charged as long as the taxpayer has either:

• Paid the tax due; or
• Agree a time-to-pay plan

by the end of the day on 1 April 2021. However, interest will still apply from 1 February at 2.6%.

This follows on from the earlier announcement that late filing penalties would be waived if returns were filed no later than 28 February.

Budget and 2021-22 tax data

The delayed budget will take place on 3 March 2021. The lack of publication of the 2021-22 rates and thresholds has frustrated accountants and tax advisers (and their software providers) across the country. However, there have been at least some confirmations to allow preparation for the new fiscal year. These are all subject to parliamentary approval at the time of writing.

Tax rates and thresholds

The personal allowance will increase in line with CPI inflation - to £12,570. The basic rate band will increase from £37,500 to £37,700 for taxpayers in England, Wales and Northern Ireland. This means the higher rate kicks in at £50,270 accordingly. The personal allowance abatement threshold and additional rate threshold both remain unchanged.

For Scottish taxpayers, there are no significant changes to the tax rates or bands - merely a slight uplift to reflect inflation.

The rates and bands for 2021-22 for Scottish taxpayers are as follows:

National Insurance

The government has confirmed that the Class 1 National Insurance thresholds will also change. The relevant figures for 2021-22 will be as follows:

Further information relevant to employers, for example for payments made under Statutory Sick/Maternity/Paternity Pay rules can be found here.

Self-employed and voluntary NI

The draft regulations governing NI also confirm the proposed rates and thresholds for Classes 2, 3 and 4 NI.

Class 2 will remain at £3.05 per week, but the small profits threshold will increase to £6,515 (up by £40).

Class 3 voluntary contributions will increase to £15.40 (an increase of 10p).

For Class 4, there is no change to the applicable rates. However, the lower and upper profit limits will increase - to £9,568 and £50,270 respectively.

Taxable benefits

The fixed multipliers for company vans and fuel provided for company vans, as well as the fixed multiplier for fuel provided for company cars have also been confirmed as follows:

Newsletter issue - March 2021

One of the consequences of Brexit is that exports of goods from GB to customers based in the EU are now zero-rated as far as UK VAT is concerned. However, if the consignment is valued at more than £22 there will be an import VAT liability at the other end. This isn't too much of a problem for B2B sales where the customer is VAT registered - they can simply claim back the VAT according to the particular process relevant to that country. However, for unregistered businesses and B2C customers, there are issues.

One problem is that customers who are used to paying UK VAT at 20% may now be faced with higher rates, for example a customer in Sweden will need to pay 25% on standard-rated goods. There are reports of EU customers abandoning UK businesses due to the complications and extra costs.

There are further, more complicated, rules to consider where the goods were originally imported to GB from outside the EU. Customs duties, such as dumping duty, may be payable depending on the country of origin.

Becoming the importer

Some customers simply don't want to be responsible for the customs procedures in their home country. A freight forwarder may be able to handle this for the seller, paying the import VAT due over to the VAT authorities directly (usually on a monthly basis). This will smooth the process for the customer but will incur fees for the selling business. There have also been reports of the system breaking down, for example where insufficient import VAT is paid meaning the goods are held up at customs, despite the seller assuring the customer that this would be avoided.

A further potential solution is for an exporting business to register for VAT in the customer's country and import the goods themselves. In this way, they become responsible for the customs declarations and import VAT - which they can then reclaim via their overseas VAT returns, charging their customer sales VAT. The problem with this is that it requires registration in every individual country that the seller exports into. There are legal requirements in some countries that mean a local fiscal representative must be appointed, i.e. the seller can't use their UK-based accountant. The local representative may be required to accept joint responsibility for any unpaid VAT, which can make this avenue prohibitively expensive due to the (understandably) high fees.

However, there is some good news in this regard with the introduction of the Import One-Stop-Shop (IOSS) - due to launch in July 2021.

IOSS - July 2021

From 1 July 2021, the £22 low consignment exemption will be scrapped. All EU imports will then be subject to VAT in the relevant country of import. However, for consignments with a total aggregate value of less than £150 the VAT will be charged at the point of sale, rather than at the point of arrival in the customer country. UK-based businesses can register for the IOSS as "non-Union sellers". This should help small traders selling goods directly to consumers, as the result is more akin to the pre-Brexit position for the customer. However, the reporting requirement will be different.

In order to report the VAT, the seller can use the new IOSS. This will require VAT registration in just one EU member state, rather than each individual country sales are made in. A business registering for the IOSS will receive a unique number that must be quoted on all shipments to the EU. A single IOSS VAT return will then be filed monthly to declare all import VAT due. A single cash payment will then be made to the tax authority in the chosen country of IOSS registration. UK input tax related to those sales will of course continue to be included on the domestic UK VAT return, so a payment will still be required - even if the UK return shows a refund is due. Any VAT paid on expenses in the EU will not be claimed on either a UK VAT return or an IOSS return. A separate claim must be made in a paper format to the tax authority where the VAT was paid, known as a 13th Directive claim. See the EU published guidance for information on how to do this.

The IOSS is optional and a business can opt to follow the overseas registration route to pay and reclaim the import VAT, or use the Special Arrangements (e.g. a freight forwarder or customs agent) to have the import VAT collected from the customer instead.

Further information about the IOSS should be published later in the year.

Newsletter issue - March 2021

A business receiving support payments for Covid-19 needs to ensure the receipt is correctly recorded as taxable income for corporation tax purposes. For unincorporated businesses using the cash basis, this is straightforward enough. However, where the accounts are prepared using GAAP, more care is needed.

Section 106 of Finance Act 2020 states that payments received under the following schemes are within the scope of this:

• the coronavirus job retention scheme;
• the self-employment income support scheme;
• any other scheme that is the subject of a direction given under section 76 of the Coronavirus Act 2020 (functions of Her Majesty's Revenue and Customs in relation to coronavirus or coronavirus disease);
• the coronavirus statutory sick pay rebate scheme;
• a coronavirus business support grant scheme;
• any scheme specified or described in regulations made under this section by the Treasury.

Schedule 16 then deals with the tax treatment of the income, as well as exemptions for charities, charitable companies and community amateur sports clubs.

In a nutshell

The basic rule is that the payments are taxable when they are recognised using GAAP. This means that they should be reported in the period they relate to, rather than when they are received. This is based on the date that the business becomes entitled to the payment, not the date it is paid. As an example, the first tranche of LA grants based on the business premises' rateable value were approved on 11 March 2020, and based on the RV at that date, as long as the business was still trading. There were no performance conditions, so an eligible business became entitled to the grant on 11 March 2020, and this is the correct date to use for recognising the income.

However, there are some important exceptions to this general rule.

Firstly, receipts under the Self-Employed Income Support Scheme (SEISS) are taxable in 2020-21, even if part of this is attributable to the period before 6 April 2020.

Secondly, if a business ceases trading but subsequently receives a coronavirus support payment, the income is included for the year it is received, even if this gives a different result than under GAAP.

Newsletter issue - March 2021

When preparing a tax return, it is easy to look at a dividend statement from a VCT and think "It's exempt" and simply file it away. Of course, in most cases this is probably sufficient. However, sometimes a little more care is needed.

Dividend exemption

Where an individual aged 18 or over acquires qualifying shares up to the permitted annual maximum of £200,000, any dividends paid on the shares whilst the VCT remains approved are exempt from tax. In addition, if the VCT shares are newly issued, the individual may qualify for income tax relief in a similar way to EIS shares.

The individual does not have to subscribe for new shares. VCT shares are traded on regulated markets and so it is relatively easy to acquire second-hand shares. The second-hand shares cannot attract income tax relief, which can only be claimed once in respect of the same shares, but the dividend tax exemption is available, provided the shares were bought for genuine commercial purposes. Exempt dividends do not need to be reported on a tax return.

VCT shares often form a substantial part of a managed investment portfolio. The investment manager will send a consolidated income certificate, and it is common practice to include the consolidated figures on the tax return It is important when preparing the income tax return to check whether qualifying VCT dividends have been accounted for properly, that is to say they have been left out of the consolidated income statement which is produced for tax purposes. If not, then a manual adjustment will need to be made.

Restriction: limit exceeded

In cases where shares with more than £200,000 are acquired in a tax year, the dividend exemption is restricted to the first £200,000 of shares bought. For example, if £300,000 shares were purchased, only 2/3rds of the dividends will be exempt.

Restriction: VCT approval withdrawn

Dividends are only exempt if the VCT retains its approved status. If this is lost, the treatment of dividends depends on the type of approval the VCT had:

• If the VCT had received full approval, but this is subsequently withdrawn, any dividends paid after the withdrawal date will be fully taxable.
• If the VCT approval was only provisional, and this is removed because (for example) some condition of the provisional approval was not met, the VCT is treated as never having been approved. In these circumstances, therefore, any dividends paid during the period of provisional approval will need to be taxed.

Newsletter issue - March 2021

Q. I am looking at buying a rundown pub/restaurant ready for this summer, assuming it will be allowed to open. I need to spend approximately £100,000 on building works. Can I register for VAT straightaway or do I need to wait until I open?

A: Yes, you can register for VAT as long as you are intending to make taxable sales at some point in the future. As the building has already been used in a trade, check whether there is an option to tax it in force. If so, see if the seller would be prepared to revoke it if possible. This should save you some SDLT, and you won't need to pay the VAT up front, meaning there is a cash flow advantage too.

Q. Two years ago, I sold my business to a company for £200,000 cash up front. There was also an earn-out deal that would see me receive a percentage of sales above a certain hurdle. This was valued (and taxed) at £100,000 at the time. Due to the coronavirus, I have actually only received £30,000. Can I offset the £70,000 shortfall against my income? I have no other capital gains and am very unlikely to have any going forward.

A: A shortfall on an earn-out right is a capital loss and, unlike certain other capital losses, cannot be offset against general income. However, you can elect to carry the loss back to the year the original disposal took place in to reduce your capital gain. You need to make this election in writing and include a calculation showing how you have worked out the loss.

Q. I have been subject to a drawn-out enquiry by a HMRC officer for nearly two years. I have acted in good faith and provided everything that I have been asked to send in, but the officer keeps asking for more and more paperwork. I'm confident that no errors have been made and have written to her to ask for a closure notice, but this has been refused. Is there a way I can force the issue?

A: You can apply to the Tribunal to ask it to direct HMRC to close the enquiry using form T245, which you can obtain here. It may be worth contacting the officer to inform them of your intentions. It might just give them the nudge needed to close it down of their own accord.

Newsletter issue - March 2021

1 - Due date for payment of Corporation Tax for accounting periods ending 31 May 2020.

1 - New rules on domestic reverse charge for the construction industry take effect.

7 - Electronic VAT return and payment due for quarter ended 31 January 2020.

15 - Claim deadline for employers for furlough days in February.

19/22 - PAYE/NIC, student loan and CIS deductions due for month to 5/3/2021.

31 - Last date for expenditure on Energy Saving Plant & Machinery to qualify for enhanced capital allowances at 100%.

31 - Due date for any payments delayed under the VAT Deferral Scheme in 2020, unless the new payment scheme is opted into - see here.

The economy and headline figures

The 2021 Budget took place on 3 March 2021. Chancellor Rishi Sunak announced that, as a result of the Covid-19 crisis, GDP shrank by 9.9% in 2020, the largest annual fall in 300 years according to a Bank of England report, albeit lower than the 11.3% forecasted in November. However, the Office for Budget Responsibility (OBR) expects that the economy will recover quickly once the current restrictions are lifted.

In fact, the OBR expects that recovery to pre-crisis levels will be around six months earlier than was predicted in the November 2020 forecast.

In terms of annual borrowing, the figure for 2020/21 reached 16.9% of GDP (£355 billion), which is the highest level of peacetime borrowing on record. This is forecast to fall to 10.3% (£234 billion) in 2021/22, and to 2.8% (£74 billion) by 2024/25.

Underlying national debt (which excludes amounts owed to the Bank of England) is forecast to peak at 97.1% for GDP in 2023/24 before starting to fall in 2024/25. However, the OBR points out that the cost of servicing this has fallen to a record low of 2.4% of total revenue due to the fall in interest rates.

Aside from the forecasts, the Budget was also expected to see a number of Covid-19 support measures extended, and details of the next phase of support announced following the government publishing its roadmap out of lockdown in February.

Covid-19 support and other measures

The Chancellor announced that the government was committed to protecting jobs and livelihoods. Several support schemes are to be extended beyond end of the road map (currently scheduled to take place on 21 June) to accommodate the most cautious possible outcomes. Total public spending on Covid-19 support measures from 2020 to 2022 will eventually total £407 billion based on current announcements and support already given.

Furlough

The furlough scheme is extended to 30 September 2021. However, from July, employers will need to contribute toward it. Employees will still receive 80% of their pay, subject to a £2,500 per month cap, but for July, the government will only contribute 70% of this, meaning employers will need to pay the other 10%. For August and September, the government contribution will fall to 60%.

SEISS

The Self-Employment Income Support Scheme (SEISS) was also extended, with the announcement that there will be a fifth round of funding to apply from May to July 2021. The downside is that there will be a benchmark test, with claimants needing to show that their turnover has fallen by at least 30% to qualify for the full grant - which is 80% of average monthly profits, capped at £2,500. Where a claimant's profits have fallen, but by less than this benchmark amount, a smaller grant equal to 30% of average monthly profits may be available instead.

In terms of the fourth grant, i.e. that for February - April 2021, it was confirmed that claimants may now use their 2019/20 returns as evidence of profits. Unlike the previous tranches (which only looked at returns for the years to 2018/19), this means that people who were newly self employed in 2019/20 can now make a claim. The Chancellor estimated that this would open up the scheme to more than 600,000 people.

New wave of grants

There was also the announcement of a new Restart Grant up to £6,000 per premises for non-essential retail businesses. Businesses in the hospitality and tourism industry, as well as those offering leisure, personal care and accommodation may qualify for a larger grant of up to £18,000, owing to them having been more adversely affected by the lockdown restrictions, and likely to continue to be during the phased exit. They will also be required to stay closed longer under current plans.

Business rates

The business rates holiday for retail, hospitality and leisure businesses is extended until the end of June 2021. After this, rates will be discounted by two thirds - up to a value of £2 million for businesses who have had to close. A lower cap of £105,000 will apply to businesses that were able to remain open. An opt-out is available for businesses that were largely unaffected by Covid-19, or those who simply don't wish to take advantage.

New recovery loan scheme

The previously announced Recovery Loan Scheme was confirmed, replacing the Bounce Back Loan Scheme and Coronavirus Business Interruption Loan Scheme. This will provide businesses with loans from £25,000 to £10 million, with 80% of the amount guaranteed by the government. The scheme will open on 6 April and will be available until 31 December 2021. Invoice financing will be available between £1,000 and £10 million.

To qualify, a business must be able to show that it:

• is viable or would be viable were it not for the pandemic;
• has been impacted by the coronavirus pandemic; and
• is not in collective insolvency proceedings.

Tax credit claimants

The Universal Credit uplift of £20 per week will be extended by six months in mainland Great Britain, and the Northern Ireland Executive will receive funding at a level allowing them to match this for claimants there. There will also be a one-off payment of £500 for claimants of Working Tax Credits.

Apprentices

Incentives for businesses to hire apprentices will double to £3,000, and the government extending the end date to 30 September 2021. The apprentice can be of any age but must be a new hire to qualify.

Property

The SDLT 0% band was temporarily increased to £500,000 in 2020. The Chancellor confirmed that this would be extended to the end of June 2021. After this, the band will fall to £250,000, before returning to its standard level of £125,000 from 1 October 2021.

The proposed non-resident surcharge of 2% for purchasers of UK residential property will be implemented from 1 April 2021.

The government will also provide mortgage guarantees for homebuyers. This will not be limited to first-time buyers but will not be able to be used for second homes or buy-to-let properties. It will have a maximum purchase value of £600,000. This intended to encourage lenders to return to offering mortgages to lenders with low deposits. The scheme will open in April 2021 and run to the end of 2022 (though the government will review whether an extension is appropriate).

There are new reliefs from the annual tax on enveloped dwellings (ATED) and the 15% SDLT rate for qualifying housing cooperatives from 3 March 2021.

Tax measures: introduction

Of course, the focus of the annual budget for accountants, tax advisers and their clients are the fiscal measures. Despite pre-Budget speculation, there was no alignment of the capital gains tax (CGT) and income tax rates, nor any slashing of the annual exempt amount. In fact, the announcements affecting individuals were relatively minor changes.

The increases to the levels of the personal allowance and basic rate band had already been confirmed, but what was not known previously was that these would be the last increases for five years. The NI upper earnings limit and upper profits limit remain aligned to these for the full five-year period.

Companies on the other hand will see an increase of up to 6% in corporation tax rates, depending on their profit level. However, there will be a two-year delay in implementing this.

A summary of the measures announced at the 2021 Budget on 3 March 2021 follows. This largely does not include any measures that were previously included in the draft legislation published in July and November 2020, unless there have been changes.

Individuals

Rates, bands and thresholds

The headline announcement was that there will be no increase in income tax rates, in line with previous promises made by the government.

However, the personal tax allowance will increase to £12,570 for 2021/22, as previously announced, but will remain frozen until at least April 2026. The basic rate band will also be frozen at £37,700 for this period, meaning the higher rate threshold will be £50,270.

The NI Upper Earnings and Profits threshold will also be frozen at £50,271 for the next five years.

For savers with only modest non-investment income, the starting rate for savings will remain at £5,000 for 2021/22.

The current ISA, Junior ISA and Child Trust Fund subscription limits will all remain the same for 2021/22.

Self-employed traders

For self-employed taxpayers, the Budget documents confirm that grants received under SEISS received on or after 6 April 2021 will be taxable in the year of receipt instead of solely in 2020/21. A working household in receipt of Working Tax Credits will enjoy an income tax exemption for Covid-19 support payments.

There will be a temporary extension to the loss carry back provisions for years 2020/21 and 2021/22. The extension will permit a carry back for the three previous tax years rather than just the previous tax year. The extension will permit losses to be offset against profits from the same trade, rather than general income. The existing sideways loss relief provisions remain unchanged, and an extended loss claim can be made as well as a s. 64 claim. There will be an overall cap of £2 million on losses that can be relieved under the extension.

Capital taxes

There are also freezes to the CGT annual exemption (at £12,300 for individuals and £6,150 for trustees) the IHT nil-rate band and residence nil rate band (at £325,000 and £175,000 respectively), as well as the pensions standard lifetime allowance (£1,073,100).

Turning to gift holdover relief for business assets, there will be an amendment to the anti-avoidance rule that prevents relief applying to a transfer to a company controlled by a non-resident person connected to the person making the gift. This rule will be amended slightly to ensure it applies where the person controlling the company is also the person making the gift.

Social Investment Tax Relief (SITR) has been extended until at least April 2023 - it was originally due to end in 2021.

Benefits-in-Kind and expenses

There will be a limited easing of the rules regarding employer-provided bicycles, removing the requirement that the equipment provided must be used mainly used on journeys relating to work, e.g. commuting until April 2022. To qualify, the equipment must have been provided on or before 20 December 2020.

For optional remuneration arrangements (OpRAs), a disregard for users of long-term arrangements that are currently enjoying a tax advantage due to transitional rules will be introduced to ensure they do not lose this advantage if they start to receive Statutory Parental Bereavement Payment (SPBP). This will work by specifically excluding SPBP from being a variation in a contract, as this would normally end the entitlement to the transitional rules. This will be retrospective and apply to the 2020/21 tax year.

There will be legislation included in Finance Bill 2021 for income tax exemption for employer-funded (or reimbursed) Covid-19 antigen tests for 2020/21 (retrospectively) and 2021/22. There is already an NI exemption for 2020/21 and this will be extended to 2021/22.

The exemption for Covid-19-related home office expenses, e.g. reimbursements for purchases of equipment to allow working from home, is extended for 2021/22.

IR35

A technical change to the off-payroll working rules legislation was announced in November 2020 to address an unintended widening of the definition of an intermediary in the off-payroll working rules legislation, where it is a company. The Budget confirmed that an equivalent change will be made to the NI regulations, as well as introducing a targeted anti-avoidance rule to prevent exploitation of the definition of "intermediary". There are also some minor changes relating to information sharing and use of information in the labour supply chain.

Companies

Corporation tax rates

The big headline announcement is that the corporation tax rate will increase to 25% from April 2023. Despite this, the UK will still have lowest rate in the G7 based on current rates. To protect the smallest businesses, companies with profits below £50,000 will retain the current 19% as a "small profits rate". Above this profit level, but where profits are below £250,000, there will be an entitlement to marginal relief to ensure that there is no cliff-edge. No detail about how this relief will operate have yet been published, but it is confirmed that the £50,000 and £250,000 thresholds will need to be proportionately reduced where there are associated companies or short accounting periods.

The small profits rate will not apply to close investment companies.

The bank surcharge, currently set at 8%, will be reviewed this Autumn (ahead of the changes) to ensure the crucial UK banking sector does not lose its competitive global position in terms of tax rates.

Diverted profits tax

When the increased rate takes effect, the rate of diverted profits tax will also increase to 31%, maintaining the 6% difference.

Losses

The temporary extension to the loss relief provisions also apply to companies, and will apply to relevant company accounting periods ending in the period from 1 April 2020 to 31 March 2022. The carry back to the previous year is unlimited, however for carry back claims for the earlier years, there will be a restriction to £2 million of unused trading losses to offset profits from the same trade. The losses must be relived in a specific order, starting with the most recent year.

Capital allowances

An enhanced first-year allowance, termed a "super-deduction", will be available for most purchases of equipment that would normally qualify as a main rate asset. The deduction will be 130% of actual expenditure. There will be a corresponding 50% super-deduction for special pool assets. To qualify, the expenditure needs to be incurred between 1 April 2021 and 1 April 2023. There are certain assets that will be excluded, including those covered by CAA 2001, s. 46 and second-hand assets.

An enhanced rate of Structures and Buildings Allowance (at 10%) will apply in the eight "Freeports" confirmed in the Budget. These Freeports are:

• East Midlands Airport
• Felixstowe and Harwich
• Humber Region
• Liverpool City Region
• Plymouth
• Solent
• Thames
• Teesside

Expenditure will qualify if it is incurred and the structure is brought into use before 30 September 2026. There will also be an enhanced first-year allowance for purchases of plant and machinery in these designated regions until 30 September 2026. Further Freeport sites may be designated at a later date.

Certain anti-avoidance legislation relating to the extension of leases relating to Covid-19 will be "switched off", returning the entitlement to capital allowances to the pre-crisis position.

VAT

The VAT registration threshold will remain at £85,000 for a further two years, i.e. until 31 March 2024. The corresponding deregistration threshold will also remain at its current level of £83,000 for two years.

The 5% reduced rate for hospitality, holiday accommodation and attractions is extended to 30 September 2021. There will then be an interim rate of 12.5% for 6 months.

The scope of Making Tax Digital for VAT will be extended to all registered businesses from 1 April 2022. Until then, only businesses that are compulsorily registered are mandated.

Indirect taxes

Freezing of duties

A number of duties, rates and levies have been frozen for 2021/22:

• All alcohol duty rates;
• Fuel duty (for the eleventh consecutive year);
• The aggregates levy;

Additionally, the Carbon Price Support rate per tonne of CO2 emitted will be frozen to £18 for 2022/23. It had already been frozen for 2021/22.

Landfill

The standard and lower rates of Landfill tax will increase with the Retail Prices Index, rounded to the nearest 5p.

The value of the Landfill Communities Fund for 2021/22 will be £34.5 million. This is a tax credit scheme that allows operators to claim a credit in exchange for a contribution to certain environmental bodies. The cap on contributions by landfill operators remains unchanged at 5.3% of their Landfill Tax Liability.

Red diesel and biofuels

The entitlement to use red diesel and rebated biofuels will be largely removed from 1 April 2022, with exceptions for specified sectors, e.g. agriculture. Fuel duty will be extended to biofuels and fuel substitutes used in heating from 1 April 2022.

Vehicle Excise Duty

VED for cars, vans, motorcycles and motorcycle trade licences will increase in line with the Retail Price Index from 1 April 2021. However, in order to support the haulage sector with the Covid-19 recovery efforts, VED for heavy goods vehicles will be frozen for 2021/22, and the heavy goods vehicle levy will be suspended for a year from 1 August 2021.

Tobacco Duty

The Finance Bill will consolidate the changes announced in November 2020, i.e. to increase the duty rates on all tobacco products by 2% above the Retail Price Index. The duty rate for hand-rolling tobacco increased by an additional 4% above this and the minimum excise tax by an additional 2%. The Budget confirmed that there were no additional increases above these rates.

Plastic packaging tax

A new plastic packaging tax will be introduced from 1 April 2022. This will be a charge at the rate of £200 per tonne of plastic packaging that contains less than 30% recycled plastic content.

Administration and other matters

Interest and penalty harmonisation

A new harmonised penalty regime will be rolled out for VAT and income tax for late filing of returns or late payment of amounts due. This was first proposed back in 2018/19. There have been several consultations since, and a new regime will be introduced from 1 April 2022. The new regime will apply for VAT first, and then for traders or landlords within income tax self-assessment (with income in excess of £10,000 a year) from 6 April 2023 for, then for all income tax self-assessment taxpayers the following year.

The new regime aims to align the treatment of taxpayers across the spectrum of taxes for similar behaviours.

The new late submission regime will be points-based, and a financial penalty of £200 issued for every missed submission on and after relevant points threshold is reached.

The new late payment regime will introduce penalties which are proportionate to the amount of tax owed and how late payment is, with no penalty chargeable on tax paid up to 15 days after the due date, a 2% penalty chargeable on tax paid between 16 and 30 days after the due date, which increases to 4% penalty chargeable on tax unpaid after 30 days, with a further 4% annualised penalty rate chargeable on outstanding tax due after 30 days.

This will signal the end of the VAT default surcharge regime. Interest relating to VAT under and overpayments will be aligned with the other taxes.

Promoters of tax avoidance

Following a consultation, there will be further measures to enable action against promoters/marketers of tax avoidance schemes to help strengthen public finances as the UK recovers economically from Covid-19. Finance Bill 2021 will contain measures that will:

• strengthen information powers for HMRC's existing regime to tackle enablers of tax avoidance schemes and ensure enabler penalties are issued sooner for multi-user schemes;
• enable HMRC to act promptly where promoters fail to disclose their avoidance schemes under the Disclosure of Tax Avoidance Scheme and Disclosure of VAT and other Indirect Taxes (DOTAS and DASVOIT) regimes;
• allow HMRC to stop promoters from marketing and selling avoidance schemes earlier and ensure promoters fulfil their obligations under the Promoters of Tax Avoidance Schemes (POTAS) regime;
• make further technical amendments to the POTAS regime, so the regime can continue to operate effectively;
• make additional changes to the General Anti-Abuse Rule (GAAR) so it can be used as intended to tackle avoidance using partnerships.

These measures will take effect from the date of Royal Assent.

Follower notices and penalties

The rate of penalty applied to recipients of a follower notice who do not subsequently amend their returns, or otherwise take corrective action, will be reduced from 50% to 30%. However, a new penalty of 20% will be introduced that will apply if a tribunal later decides that the recipient continued their litigation on an "unreasonable" basis.

Tax conditionality

From 4 April 2022 (in England and Wales), the renewal of certain licences will be conditional on the applicants passing checks to show that they are registered for tax. This will affect:

• taxi drivers;
• private hire vehicle firms; and
• scrap metal dealers.

Benedicts Accountants are based in London, offering local business owners and individuals a wide range of services.

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