Finance Bill 2020

Covid-19 notwithstanding, normal tax processes continue and today saw the publication of the Finance Bill, which will give legal effect to the announcements in the Budget.  Our expectation is that the Bill will be given Royal Assent in July, but in this fast-changing environment a delay to the Autumn cannot be ruled out.

Farewell to a much loved relief – and hello to a remarkably similar one!

Perhaps the only surprise in the Bill itself is what has happened to Entrepreneurs’ relief. When the reduction in the lifetime limit to £1m was unveiled on Budget day the government also announced a number of measures to prevent individuals exploiting the rules to get around the change to the limit. Clearly those were not seen as strong enough, because the Bill now contains a further measure to prevent manipulation of the limit though the use of corporate reconstructions. This will not affect many people but HMRC were obviously concerned that a loophole had been created and has acted swiftly to block it. I suppose that it is reassuring that not everybody is government is working on Covid-19.

The other change is that Entrepreneurs’ relief no longer exists! But don’t worry – that is only because of a change of name. Many of the criticisms of the relief were on the basis that it did not really do anything to encourage entrepreneurs. That has obviously struck a chord with the government because the relief will now be known as “business assets disposal relief”. That does not trip off the tongue quite as easily, but I suppose that we will get used to it. But I would stress that this is only a name change. The relief itself is, other than the reduction in the limit, unchanged.

Digitalisation is still very much on the agenda

Alongside the Finance Bill a number of other tax-related documents have been published. A couple of these particularly caught my attention. The first is an update on Making Tax Digital. Much of this is backward looking and reviews the early taxpayer experience of MTD for VAT. The assessment is upbeat but does recognise that problems did arise, particularly around the processes which agents had to go though to get their clients registered under the new system. HMRC promises to take these into account in designing the next stage of the project.

The forward looking part of the document discusses where we are on MTD for income tax. This makes it clear that it is still HMRC’s intention to extend MTD to business which pay income tax but there is very little detail of how or when this will happen. There does seem to be an acceptance that it will take some time before it will be possible to consider making MTD for income tax compulsory and it appears that there will be a much longer pilot phase that originally anticipated. The document recognises that until there is a concrete roadmap for the roll out the software industry will be reluctant to commit to significant investment in MTD software. But no roadmap is included in this document and I suspect that it will be some time before any firm plans are announced.

How to trust a tax adviser

The other key document is a call for evidence about raising the standards of the tax advisers. Here HMRC sets out its view of the current state of the tax advisory market. While it acknowledges that the majority of agents do valuable work for their clients it is pretty scathing about the small minority who don’t. It says “there are some advisers who do not provide a good quality service to their clients. This may be because they lack competency or have not kept up with technical changes, are dishonest or do not hold specialist expertise. Some tax advisers do not adhere to the high ethical standards that their professional bodies expect of them”. These comments are backed up with a number of examples of poor agent behaviour. Much of the emphasis in the document is on protecting consumers, so that any buyer of tax advice can be confident that that advice is reliable and will not get them into trouble with HMRC.

A number of possible actions are suggesting including, at the extreme, regulation of the tax profession. This is something which has always been shied away from in the past, not least because HMRC does not want to act as a regulator, but the fact that it is put forward as a possibility here does show how seriously this problem is now being taken at the highest levels within HMRC.

Plenty more where that come from

There’s no space here to discuss some of the other consultations but I do recommend that people look in particular at the proposals for tackling abuse in the construction industry scheme and the consultation on how large businesses will be required to notify HMRC where the tax treatment of significant items in their accounts is uncertain.

As ever HMRC has given us plenty to think about. People stuck at home might actually have time this year to read more of the detail than they usually do. But don’t overdo it – give your brain a rest sometimes.