Tax Administration and Maintenance Day 2021
Individual savings accounts
A call for evidence has been issued in relation to the regulatory compliance requirements that must be met by individual savings account (ISA) managers. HMRC questions whether the current penalty regime is sufficient to discourage careless regulatory breaches. It has come to HMRC’s attention that some ISA managers repeatedly breach the rules and suffer the penalties because it is cheaper than fixing the problems with their internal systems.
HMRC is interested in responses as to whether:
- penalties should be charged for all minor regulatory breaches (which would mean a new requirement that all breaches must be reported), with higher penalties for significant or persistent breaches. These would be charged per account per tax year in which a breach has occurred
- a penalty should be charged on the investor where they are non-compliant (eg invests in an ISA as a non-UK resident)
- ISA manager approval should be withdrawn or suspended if that person does not conduct any ISA business within a certain period (eg 12 months)
The call for evidence relates to all types of ISA, ie cash ISA, stocks and shares ISA, junior ISA, lifetime ISA and innovative finance ISA.
Responses must be received by 21 February 2022. Once the evidence has been reviewed, HMRC may issue a consultation on the proposals.
For commentary on the current regulatory regime, see Simon’s Taxes E3.321–E3.331 and the GOV.UK website.
Reforming R&D tax reliefs
The Government has published a report on R&D tax reliefs together with the results of research it commissioned into companies’ behaviours and decision-making processes when preparing claims for R&D tax reliefs. The publication of these documents follows a wide-ranging review of R&D tax reliefs announced at Spring Budget 2021, which was supported by a consultation seeking views on current R&D tax relief schemes.
The report includes a summary of responses to the consultation and sets out the next steps for the review, with the Government confirming that the review is ongoing and that it will continue to consider other areas for reform. The report also provides more detail about the announcements made at Autumn Budget 2021, as follows:
- extending the scope of qualifying expenditure to include expenditure on data and cloud computing ― expenditure on licence payments for datasets and expenditure on cloud computing costs that can be attributed to computation, data processing and software will be treated as qualifying expenditure for the purposes of R&D tax relief
- refocussing R&D reliefs towards innovation in the UK, rather than overseas ― in respect of the SME scheme, companies will only be able to claim relief for expenditure on R&D activity subcontracted to a third party where the work is performed in the UK, with a similar principle applying in respect of R&D expenditure credit. Additionally, relief for expenditure on payments for externally provided workers will only be available where those workers are paid through a UK payroll. Companies will still be able to claim R&D tax reliefs on inputs to activity in the UK, such as costs of software and consumables sourced overseas, payments for clinical trials volunteers overseas and payments for data and cloud sourced overseas
- tackling abuse and compliance ― as well as creating a new team to focus on tackling abuse, the Government will require all R&D claims to be made digitally after advance notification to HMRC, include more detail of the claim including information about any advising agent, and be endorsed by a named senior officer of the company
The Government also intends to amend existing legislation to address existing ‘anomalies and unforeseen consequences’. The amendments include changing the time limit for making a claim to two years from the end of the relevant accounting period, allowing group companies to retain SME status for a year if an SME within a group becomes large, and focussing on the viability of a company when restricting relief rather than just looking at whether a company is technically a going concern.
The Government is seeking stakeholder views until 8 February 2022 and draft legislation will be published in the summer of 2022 for comments. Final legislation will be included in FB 2023 and take effect from April 2023.
See: R&D Tax Reliefs Report and Customer experience in claiming Research and Development tax reliefs.
Transfer pricing documentation
The Government has published a summary of responses to its consultation, which ran from 23 March 2021 until 1 June 2021, on transfer pricing documentation requirements for large businesses with a UK presence.
The driving force behind the consultation was to ensure that the existing UK requirements remain fit for pur-pose and best serve the needs of HMRC and UK businesses.
The consultation explored two main areas:
- whether affected UK businesses should be required to maintain, and produce on request, a master and local file (including the requirement for additional supporting evidence logs for lo-cal files) to support their transfer pricing position, and
- the use of International Dealings Schedules (IDS) to report transactional data on cross-border transfer pricing transactions to HMRC in a structured format
The main outcomes identified in the summary of responses are as follows:
- the master and local file requirement will only apply to multinational enterprises (MNEs) within the Country by Country Reporting (CbCR) regime. For more information on CbCR, see the UK country-by-country reporting guidance note
- for those MNE groups that do not routinely prepare a master file (or use a format not based on the OECD model) updated guidance will be provided in due course to help prepare them for the transfer pricing documentation requirements
- in light of the significant administrative burden, a detailed evidence log will not be required for UK local files. Instead, a less detailed Summary Audit Trail (SAT) will be required. While further HMRC guidance will be issued, the SAT is expected to be a short, concise document summa-rising the work already undertaken by the business in arriving at the conclusions in their trans-fer pricing documentation
- upon request, businesses will be required to produce a copy of their master and local files supporting their transfer pricing position within 30 days
- in line with OECD standards, the focus will be on material transactions and guidance will be issued in due course to help determine what is material in this context
- UK to UK transactions are excluded for the purposes of the master and local files, unless there is a material UK risk (for example, where entities benefit from oil and gas ring-fencing)
- a business can self-assess that all of its international related party transactions are immaterial. In which case, it will not be required to complete a local file or have to make any type of annual declaration, but a record of the analysis must be kept and provided upon request within the same 30-day timescale
- an IDS will not be introduced, but the Government will keep this policy area under review
The Government intends to consult on draft legislation in 2022 on the above changes to transfer pricing documentation with the legislation to take effect from April 2023.
See: Transfer pricing documentation.
Mandatory disclosure rules
The Government published draft regulations and a consultation on mandatory disclosure rules (MDR) for avoidance structures. As announced at Spring Budget 2021, the Government is replacing its implementation of DAC 6 (which originated in the EU) with the OECD’s ‘Model Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures’. MDR requires taxpayers and advisers to report in-formation to the tax authorities on certain prescribed arrangements and structures that could facilitate tax evasion. The UK’s draft International Tax Enforcement (Disclosable Arrangements) Regulations 2022 draw heavily on the model MDR with a view to providing consistency in application between jurisdictions.
The consultation seeks views on:
- the transitional rules, which will be aimed to ensure that the existing regulations (International Tax Enforcement (Disclosable Arrangements) Regulations 2020, SI 2020/25) will be revoked on the introduction of MDR, but in such a way that there are no gaps in disclosure obligations
- the identification of intermediaries and service providers and their reporting obligations under MDR, and concept of reportable taxpayer
- the definition of CRS avoidance arrangements and opaque offshore structures and the impact of the fact that they do not, unlike DAC 6, strictly have to have a cross-border element or concern multiple jurisdictions (albeit that HMRC’s interpretation is expected to be very similar)
- the definitions of arrangements and structures, noting in particular that these new rules will be global rather than limited to those with an EU element, and
- the operational elements of the rules, including exemptions, time limits, information to be re-ported and penalties for non-compliance
HMRC also states that, in order to reduce the burden on businesses, it intends:
- to take a similar approach to interpretation of MDR as it did to DAC 6, and
- that its guidance will be broadly aligned with the OECD commentary
Reviewed guidance will be published in the International Exchange of Information Manual after the regulations are finalised but before they come into force.
The consultation runs until 8 February 2022. After that date, the Government will review the draft regulations and amend as necessary before laying the final regulations in Parliament, with a view to them coming into force in Summer 2022.
See: Draft regulations: Mandatory Disclosure Rules.
Making Tax Digital for corporation tax
The Government published a consultation on Making Tax Digital for corporation tax (MTD for CT) in No-vember 2020, which closed in March 2021, and has now summarised the responses to the consultation and also provided indications of how the responses could affect the design of MTD for CT, which are outlined below:
- MTD for CT should cover all entities within the charge to corporation tax but may need to be flexible for certain types of entities, eg dormant businesses, charities etc, and require a level of detail proportionate to the size of the business, but there will be no income-based exemptions
- companies that are currently exempt from filing returns online will be exempt from MTD
- as with MTD for VAT, a company can use more than one software product to meet the requirements of MTD for CT
- the digital records will record the date, amount and category for all transactions; HMRC does not intend to define transactions but will provide further guidance
- HMRC proposes to review further the options of keeping digital records at a group level and the possibility of reporting through nominated groups companies
- there will be a minimum level of categorisation of transactions and HMRC will review how these can be aligned to XBRL tagging
- the information required in a quarterly update together with the deadline for reporting is to be confirmed by HMRC when further review work has been done
- HMRC will look at the possibility of further digitalisation of forms, allowances and reliefs, including a move away from the CT600 corporate tax return
- HMRC is considering an exception to quarterly updating for very large companies within the quarterly instalment payment regime
See: Making Tax Digital for Corporation Tax ― consultation outcome
Umbrella company market: call for evidence
The Government published a call for evidence on how the umbrella company market operates, which aims to ensure that the Government has an up-to-date and well-informed view. The call for evidence follows a July 2020 call for evidence into disguised remuneration (and the associated March 2021 summary of responses) which, amongst other items, considered the use of umbrella company structures in disguised remuneration tax avoidance.
The call for evidence seeks views from stakeholders on the role that umbrella companies play in the labour market, and how they interact with the tax and employment rights systems. It sets out the concerns that have been raised by some stakeholders, as well as Government action already taken to tackle tax non-compliance and improve protection for workers. It is intended to complement:
- HMRC’s existing strategy for tackling the promotion of tax avoidance schemes by seeking views about the specific risks posed by umbrella company structures and how those risks might be mitigated, and
- the Government’s commitment to bringing umbrella companies into scope for labour market enforcement, for instance by establishing a new single enforcement body (as committed to in the June 2021 response to the consultation on establishing a single enforcement body for employment rights)
The call for evidence runs until 22 February 2022.
See: Call for evidence: umbrella company market.
Corporation tax response to accounting changes for insurance contracts
Further to its Autumn Budget 2021 announcement that Finance Bill 2022 would include regulation-making powers to allow insurance companies to spread the transitional impact of IFRS 17 for corporation tax pur-poses, the Government has launched a consultation on the next steps in order to inform the design of the relevant secondary legislation. IFRS 17 is the new international financial reporting standard for insurance contracts that is expected to become mandatory from 1 January 2023. The consultation seeks views on the design of the spreading mechanism, including the duration of the transitional spread and which sectors of the insurance industry should be covered. It also covers the legislation needed to remove the requirement for life insurance companies to spread acquisition expenses over seven years for tax purposes.
The consultation runs until 22 February 2022. The new regulations are expected to apply to accounting periods beginning on or after 1 January 2023.
See: Consultation: Corporation Tax ― response to accounting changes for insurance contracts.
Reform of the taxation of securitisation companies
The Government published a consultation outcome on reform of the taxation of securitisation companies and also published a new technical consultation on two draft regulations to implement a number of reforms discussed in the consultation outcome. The reforms are aimed at making the UK a more attractive location for securitisations and for insurance-linked securities (ILS) arrangements by updating the tax rules to reflect developments in the current market. Specifically, the reforms aim to:
- address uncertainty and complexity in the application of the permanent securitisation regime to retained securitisations (ie those where more than 50% of the securities issued in a securitisation are acquired and retained by the originator) by treating the originator as independent from the issuer in commercially-driven retained securitisations. The draft Taxation of Securitisation Companies (Amendment) Regulations 2022 will amend the test of independence in relation to the condition (in regulation 5(3) of the Taxation of Securitisation Company Regulations 2006, SI 2006/3296) that the securities (issued by the note-issuing securitisation company) must be issued wholly or mainly to independent persons. For this purpose:
currently, persons are independent if they are not connected to the issuer within the meaning of CTA 2010, s 1122, which applies the definition of control in CTA 2010, s 450, a test of control that is difficult to apply in these circumstances, but the proposal is for the test of independence to be applied by reference to an amended version of the meaning of control in CTA 2010, s 1124, ie by reference to control of an entity’s affairs through the holding of shares, possession of voting rights or powers given by the articles of association (but not by reference to any other document regulating that or any other body corporate)
- widen access to the permanent securitisation regime, ie for charities and social impact organisations ― the draft Taxation of Securitisation Companies (Amendment) Regulations 2022 will reduce to £5m (down from £10m) the threshold for the value of the securities issuance (ie the total value of the capital market investments made under the capital market arrangement), and
- address uncertainty about the applicability of the stamp duty loan capital exemption to the transfer of securities issued by securitisation companies and (in relation to ILSs) qualifying transformer vehicles ― the draft Securitisation Companies and Qualifying Transformer Vehicles (Exemption from Stamp Duties) Regulations 2022 will introduce a targeted exemption from all stamp duties for the transfer of such securities, but this exemption will not apply to notes carrying certain conversion or acquisition rights and will also not apply where the specific tax regime for securitisations or ILSs did not apply when the capital market arrangement was entered into
In the consultation outcome, the Government also states that it will consult informally on:
- ‘the range of assets which may be securitised, on the activities test as a whole, and on whether the regime is available to the appropriate range of sectors and types of investor, including reflecting on how the [r]egulations fit with the [qualifying asset holding company regime]’, and
- the implication of holding land within securitisation companies
A second formal consultation may then follow.
The explanatory notes to the above-mentioned draft regulations also promise that updated guidance covering those changes will, when the changes come into force, be published in the Corporate Finance Manual at CFM72000 and the Stamp Taxes on Shares Manual.
The consultation on the two draft regulations referred to above runs until 11:45pm on 10 January 2022, and both regulations are intended to take effect in Spring 2022.
- Consultation outcome: reform of the taxation of securitisation companies
- Consultation: two draft statutory instruments and explanatory notes: securitisation and insur-ance-linked securities arrangements, and
- TIINs: securitisation and insurance-linked securities arrangements: allowing them to operate more effectively
Call for evidence: simplifying the VAT land exemption
The Government published the outcome of a call for evidence on simplifying the land exemption. The call for evidence ran from 12 May to 31 August 2021 and set out several potential options to simplify the land and property VAT exemption. The outcome document explains that the Government does not intend to take any further action regarding any of the potential options previously discounted by the Office of Tax Simplification, namely:
- removing the ability to opt and making all relevant transactions exempt
- removing the option to tax and making all land and property taxable at a reduced rate
- making all commercial land and property taxable at the standard rate with an option to exempt
The outcome document also explains that:
- any significant changes to the VAT rules would require considerable further consultation
- no decisions have been made as to which option, if any, will be taken further
- further discussions with businesses are intended to begin in the early part of 2022
See: Call for evidence: simplifying the VAT land exemption.
Administration of taxes
Income tax self assessment registration for the self-employed and landlords
The Government published a call for evidence on the case for reforming registration for income tax self assessment (ITSA) for individuals with income from self-employment or property. It seeks views on how and when taxpayers with new sources of self-employment or property income should start to interact with the tax system and whether current processes can be updated to provide a better experience for individuals and businesses.
The stated aim is to create a more efficient tax system that protects the taxpayer. If taxpayers interact with the tax system early, they get the best opportunity to understand their tax obligations and prepare for paying tax. The point is made that registering for ITSA also opens the door to additional benefits, such as paying Class 2 NIC to build entitlement to a state pension and accessing tax-free childcare. Earlier registration could mean the newly self-employed and landlords could access the benefits of Making Tax Digital (MTD) sooner.
The following broad themes are listed for respondents to consider:
- the most effective methods of raising taxpayer awareness of their registration obligations
- the timing of the registration obligation in relation to the start of trading or letting
- the nature of the obligation, which is currently to notify income tax liability rather than to ‘register’ for ITSA, and
- administrative burdens and costs to the taxpayer and HMRC
TMA 1970, s 7 requires individuals to give notice of liability to income tax and capital gains tax within six months after the end of the tax year in which the taxpayer became liable, subject to a ‘failure to notify’ penalty. The law itself does not require registration for ITSA, though in practice HMRC directs taxpayers to its Online Tax Registration Service. Those aware of the need to register with HMRC have reported that they are confused by the length of time between the start of their new business and the date by which they need to register. For a new ITSA taxpayer, this can be up to 18 months.
The call for evidence suggests the following alternatives:
- the current deadline of six months from the end of the tax year could be reduced to two, three or four months
- a new obligation to register could replace the current obligation to notify liability, removing the link to the tax year
- there could be an obligation to register for ITSA at a specified period after the start of the new income source (or to inform HMRC of the new source if already within ITSA)
- the obligation could be triggered when a set turnover threshold is met, for example £1,000 to align with the trading allowance
Filing and payment obligations could remain the same.
HMRC could also explore ways to use third party data to identify people who have recently started in business, making them aware of the need to register if they have not yet done so. For example, a newly self-employed taxpayer may be applying for business rates, opening a business bank account or applying for licences or safety certificates. A new landlord may be applying for buy-to-let mortgages or getting an insurance policy.
The call for evidence runs until 22 February 2022.
See: Call for evidence: income tax self assessment registration for the self-employed and landlords.
In March 2021, the Government published a call for evidence on ‘timely payment’, ie more frequent payment of income tax and of corporation tax by companies that are outside the existing quarterly instalment payment regime. The Government’s intention is to bring calculation and payment of tax closer to the point at which income or profits arise, with tax to be paid based on the current year position using up-to-date data. Taxpayers would have greater certainty about their tax liability and would be able to manage their tax affairs better, reducing the risk of being faced with an unexpectedly large tax bill. By helping to prevent taxpayers from falling behind with their payments, the Government would benefit from a decrease in the non-payment tax gap and reduced collection costs.
The call for evidence closed on 13 July 2021, and the Government has now published a summary of responses that includes next steps, as follows:
- the Government has reaffirmed its commitment that no changes to payment timings will be made within the current Parliament, but timely payment remains a long-term ambition to be developed in collaboration with stakeholders
- HMRC will conduct a voluntary in-year calculation proof of concept pilot. This will take place over three years, beginning in April 2022
- a working group with external stakeholders will be established by HMRC to influence the shaping of the policy and the design of systems and to consider how to mitigate issues raised in responses to the call for evidence relating to vulnerable and low-income taxpayers. HMRC will approach certain stakeholders to join the working group, but anyone interested in becoming a member can email HMRC
- HMRC will take steps to improve its Budget Payment Plan, under which taxpayers who are up to date with their self assessment payments can make regular monthly or weekly payments towards their next tax bill. In addition to improvements funded at Spring Budget 2021, HMRC will make additional enhancements funded through the Autumn 2021 Spending Review. These include using data from taxpayers and others to calculate and forecast liabilities; improving the taxpayer view of liabilities and payments made via the Plan; offering alternative payment options and improving taxpayer understanding of their tax affairs and the impact of making regular in-year payments
See: Call for evidence: timely payment.
Call for evidence: modernising tax debt collection from non-paying businesses
The Government published a call for evidence on the modernisation of collecting tax debts, which aims to reflect the changing nature of the economy and new business practices. This includes businesses that operate in the UK without having a physical presence here via e-commerce. The call for evidence also seeks comment on the way in which HMRC can better engage with a small number of businesses that delay paying their tax liability, which ultimately compels HMRC to take costly enforcement action. The scope of this call for evidence does not include those taxpayers in temporary financial difficulty, such as those suffering as a result of the coronavirus (COVID-19) pandemic.
Views are being sought on the following problems faced by HMRC in collecting tax debts as a result of the changing economy:
- warehouses belonging to third parties are being used by businesses on an increasing scale. This means that these businesses do not hold any UK assets at their principal place of business, which HMRC could otherwise recover under enforcement processes to settle tax debts
- the increasing use of in-house leasing restricts HMRC’s ability to recover assets to settle out-standing tax liabilities, as the businesses owing the debt do not physically own the assets
- HMRC’s enforcement powers allow for the recovery of tangible assets in settlement of tax debts, but do not extend to intangible assets, which are increasingly common in the e-commerce arena
- HMRC’s direct recovery of debts powers allow for the recovery of funds from the debtor’s bank accounts, but not from ‘digital wallets’ (an online service rather than a formal bank ac-count), which are being used on an increasing scale
Some of the options being considered to discourage persistent non-payment of tax liabilities include:
- extending the use of security deposits for high-risk businesses that repeatedly and intention-ally do not pay outstanding tax debts
- imposing directors’ personal guarantees for companies that have long-term or repeated tax debts
- exploring the role of tax agents and other intermediaries in encouraging their clients to make payments on time
The call for evidence runs until 22 February 2022, and a summary of responses will be published in the summer of 2022.
Tax administration framework ― supporting a 21st century tax system
Further to the call for evidence that was published in March 2021, HMRC has now published the summary of responses.
The call for evidence was extremely broad. The responses can be summarised as follows:
- consistency in tax registration and de-registration ― respondents pointed out that the distinction between registering for tax and notifying chargeability was not well understood and that unrepresented taxpayers may not be aware of the triggers for registration and de-registration. Suggestions included a single unique identifier, a single digital portal and an easier process by which different agents could be authorised for different taxes. Support for harmonisation of registration deadlines across taxes was mixed
- calculation and assessment of tax liabilities ― respondents mentioned that the complexity of the legislation made it difficult for taxpayers to calculate tax liabilities. For individuals, pre-population of tax information held by HMRC into digital returns may help, but many suggested that there should be a right to correct or challenge this data if it is inaccurate. Most respondents wanted HMRC to make the calculations of tax assessments easier for taxpayers to understand and to add an explanation of why the amount is due
- use of data to improve compliance ― respondents felt that data sharing between HMRC departments and between HMRC and other Government departments could be improved to re-duce errors (eg Companies House, Department of Work and Pensions) and that data should only have to be provided to HMRC once
- tax payments and repayments ― respondents were of the view that HMRC should focus on taxpayer experience and make it easier for taxpayers to make payments and receive repayments, with many citing issues with HMRC’s systems and processes rather than the legislative framework. Problems with allocation of payments against different tax liabilities were also raised. Respondents were not in favour of the harmonisation of payment dates and frequency on cash low grounds
- powers, sanctions and safeguards ― some respondents asked for a review of HMRC power and taxpayer safeguards, on the basis that recent reforms had tipped the balance in HMRC’s favour or that the burden on taxpayers and agents had increased. In terms of sanctions, there was a consensus that penalties should be proportionate and that taxpayers who were trying to put matters right should be supported (which is not the case with all penalty regimes) and HMRC should exercise discretion where appropriate. Most respondents thought that the penalty regimes could be simplified
The next step is for HMRC to produce a roadmap for future consultation and analysis of these topics. However, this work should be viewed in the context of other reforms of tax administration that have been or are being legislated or that subject to further investigation in their own right. This includes the new harmo-nised Making Tax Digital (MTD) late filing and late payment penalty regimes introduced by FA 2021, Schs 24–27, basis period reform to be legislated in Finance Bill 2022, Sch 1, and the calls for evidence on income tax self assessment registration, timely payment of tax and tax debt collection.
Chancellor responds to the Office of Tax Simplification (OTS) on IHT and CGT matters
The Treasury, in conjunction with the Chancellor, has published a response to a number of recommendations made by the OTS in relation to inheritance tax (IHT) and capital gains tax (CGT): Chancellor responds to the Office of Tax Simplification.
In July 2019, the OTS had published a report: OTS inheritance tax review: simplifying the design of the tax. This made a number of recommendations for consideration, including simplification of lifetime gift exemptions and changes to business property and agricultural property reliefs. The belated response, now published, says these recommendations must be viewed in the wider context of the current restrictions on public finances, and consequently the recommendations on IHT will not be adopted.
In response to other OTS recommendations in relation to capital gains tax review on simplifying practical technical and administrative issues, the response was more measured:
- the recommendations to introduce a single HMRC customer CGT account, publishing of clearer official guidance on a range of CGT related matters, extension of timelines of ‘no gain no loss’ windows in relation to transfers of assets, and expansion of rollover rules in relation to compulsory purchase orders, were accepted in principle (the latter two matters are subject to further consultation on the detail). The Government had already previously accepted that CGT return timescales for land and property disposals should be extended from 30 to 60 days
- recommendations to be considered further include the creation of a stand-alone HMRC CGT service that can be used as such by agents, whether the same shares held in different share portfolios should be treated as separate share pools, a possible review of principal private residence nomination timelines, clarification on the CGT rules regarding corporate bonds, and a potential review of enterprise investment scheme procedural issues to ensure the relief operates as it should
- rejected recommendations included proposed extension of private residence relief for occupied gardens, alignment of CGT with cash received dates where proceeds on sale are deferred, suggested calculation of gains or losses on foreign assets in foreign currencies rather than in sterling, and removal of possible CGT or corporation tax charges when a freeholder merely extends their own lease
Raising standards in the tax advice market
The Government has published a summary of responses to their consultation on whether to define tax ad-vice and make professional indemnity insurance (PII) compulsory for tax advisers. The consultation was published in March 2021. It explored whether compulsory PII would be an effective mechanism for:
- improving trust in the tax advice market through greater protection for consumers
- encouraging an improvement of standards amongst tax advisers
Responses to the consultation conclude that:
- compulsory PII on its own would not be an effective mechanism to raise standards
- there would not be a meaningful impact on consumer protection and the ability for consumers to secure redress
- introducing a large number of new, unregulated and potentially risky advisers into the insurance pool could adversely impact the cost and availability of insurance for all advisers
- a wider regulatory framework is required in order to deliver a significant change in standards in the tax advice market
- there are no satisfactory legal definitions of ‘tax advice’ or ‘tax adviser’, and these need to be established.
The responses suggest that to raise standards, an intervention in the tax advice market needs to be proportionate and reasonable, and satisfy three criteria:
- clarity on the required standards
- transparency so taxpayers know what to look for when engaging an adviser
- enforcement with effective sanctions to deal with breaches of standards
As a result, the Government has decided not to proceed with the introduction of a requirement for tax advisers to hold PII. It will continue to explore options to improve the wider regulatory framework in a way that fulfils the three criteria of clarity, transparency and enforcement. The Government will publish a consultation on this in 2022. This will also test a potential legislative definition of tax advice.
In addition, in 2022 HMRC will update and publish the HMRC Standard for Agents, and the conclusions of an internal review of HMRC’s existing powers to uphold agent standards.
Concerns have been raised about the repayment of tax refunds. The Government also intends to consult next year on ways to tackle the high costs to taxpayers of claiming tax refunds.
See: Raising standards in the tax advice market.
Other publications and future developments
The following calls for evidence and consultation responses were also published on 30 November 2021:
- non-structural tax reliefs and objectives: a list of all non-structural tax reliefs available to taxpayers as at November 2021, together with notes setting out the policy objectives behind each relief. This is not a consultation, but instead responds to a previous commitment the Government made in its response to Public Accounts Committee recommendations on the management of tax reliefs in September 2020.
See: Non-structural tax reliefs and objectives
- 2021 Review of the Office of Tax Simplification: Final Report: having put the OTS on a statutory footing, Finance Act 2016 also requires a review of the organisation every five years. This is the first of these reviews and engaged externally with individuals, businesses, tax professionals and academics, in addition to a call for evidence for members of the public to submit their evidence.
See: 2021 Review of the Office of Tax Simplification: Final Report
- published research ― characteristics of tax agents who are not affiliated to tax profession-al bodies: the Government has published the results of in-depth research it commissioned into the behaviours and attitudes of paid tax agents who are not members of a professional body (so-called ‘unaffiliated tax agents’), with one key objective being to identify the factors that could potentially encourage them to affiliate.
See: Research and analysis overview: understanding the characteristics of unaffiliated tax agents
- consultation response ― extending tax conditionality to Scotland and Northern Ireland: legislation will be introduced in the next Finance Bill to make the renewal of licences in the taxi and scrap metal sectors in Scotland and Northern Ireland conditional on applicants confirming they are appropriately registered for tax. The measures are intended to come into force in April 2023 and will be consistent with those coming into force in England and Wales in April 2022.
See: Consultation outcome: hidden economy conditionality ― Northern Ireland and Scotland
- stamp duty land tax: mixed-property purchases and multiple dwellings relief: consultation inviting views on possible changes to (a) the way stamp duty land tax (SDLT) is calculated in respect of purchases of mixed use property, and (b) multiple dwellings relief (MDR).
See: Consultation: stamp duty land tax: mixed-property purchases and multiple dwellings relief
- business rates: the Government has published a technical consultation on business rates. This follows the Government’s announcements on business rates at Autumn Budget 2021, following an earlier business rates review.
See: Business rates review: technical consultation
- consultation response ― improving the administration and operation of insurance premium tax (IPT): no legislative policy changes have been announced, but the Government has confirmed that it will engage with industry to explore appropriate public access to a register of insurers registered to pay IPT, alongside a code of conduct for brokers to follow in relation to IPT.
See: Consultation outcome: insurance premium tax ― administration and unfair outcomes
- call for evidence: landfill tax: a call for evidence on the ‘key design features’ of the UK’s landfill tax regime, which aims to look at how landfill tax can continue to support the Government’s environmental objectives (and, in particular, to achieve zero avoidable waste by 2050).
See: Landfill tax review: call for evidence
- proposals on the treatment of aggregate removed during construction works: a summary of responses to a consultation on the treatment of aggregate removed during construction works was published, which indicated a future Finance Bill would make changes to the scope of exemption.
See: Proposals on the treatment of aggregate removed during construction works
- small brewers’ relief (SBR): consultation outcome: at Autumn Budget 2021, the Government announced as part of its alcohol duty review that it would introduce a new small producer relief that would supersede SBR. The Government encourages brewers and other stakeholders to respond to the ongoing consultation on the new small producer relief, which forms part of that wider review of alcohol duty.
See: Small brewers’ relief (SBR): technical consultation and The new alcohol duty system: consultation
The command paper lists a number of further documents that will be published:
Draft legislation and guidance:
- rollover relief for LLPs and Scottish partnerships: TCGA 1992 will be amended to expand the scope of rollover relief to enable LLPs and Scottish partnerships to claim relief on an ex-change of interests in land held jointly by their members / partners (to align with the rules for English partnerships)
- hybrid mismatches and regulatory capital: secondary legislation will be laid in 2022 to ensure that certain regulatory capital instruments issued by banks retain their exemption from the hybrid mismatch rules after 31 December 2022
- alternative finance arrangements: secondary legislation will be introduced in 2022 to ensure that FCA-regulated home purchase plan providers and peer-to-peer platforms have access to the alternative finance (Islamic finance) rules. Arrangements entered into from today (ie 30 November 2021) will be eligible for the extended regime, but only in relation to events occurring after the effective date of the secondary legislation
- updated definitions of an investment bank: draft regulations to update the definition of a bank (specifically investment banks) in the bank-specific tax rules so that they continue to operate as intended following the introduction of the new investment firms prudential regime (IFPR) by the Financial Conduct Authority (FCA).
See: Draft regulations: The Taxation of Banks (Amendments to the Corporation Tax Act 2009, Corporation Tax Act 2010 and Finance Act 2011) Regulations 2022 and TIIN
- supporting the delivery of deposit return systems: the Government will explore and make necessary changes to the VAT regulations in order to ensure that the new drinks deposit return scheme being introduced in the UK works effectively
New consultations / calls for evidence:
- online sales tax: a consultation will be published in the new year
- administration for large business: the Government states that, following engagement with stakeholders, it is taking forward new guidelines for compliance, improved guidance, changes to help address long-running enquiries and work to improve the co-operative compliance experience
- no safe havens strategy: the Government has established a new stakeholder forum with representative bodies and agents to explore ideas to tackle offshore tax non-compliance
- deposit return schemes: the Government will explore any VAT changes that may be required to ensure that new drinks deposit return schemes introduced operate effectively
- exploring the potential of VAT split payment: the Government reiterated its intention to further explore VAT split payments as an alternative method to collect VAT on digital payments, indicating that it will continue to assess the potential for tackling non-compliance
- exploring potential VAT challenges posed by the sharing economy: the Government con-firmed that it is continuing to work with industry stakeholders and the OECD to develop its understanding of the sharing economy and its VAT implications