Autumn Budget 2021: Tax administration

Basis period reform

Despite ICAEW’s calls for government to drop its plans to move away from the basis period rules, the Autumn Budget announcements confirmed that it will go ahead, albeit a year later than the proposals published in July, with implementation pushed back to 2024.

The announcement brings the timing of the reform in line with the one-year delay to Making Tax Digital for income tax announced in September.

Under the government’s proposals, sole traders and partnerships will be subject to income tax on profits arising in a given tax year.

For businesses with an accounting year end date between 31 March and 5 April, this will mean no change. For other businesses, this is likely to bring forward the date on which taxable income will need to be calculated and tax will need to be paid.

It will also require estimates to be made of the profits generated in the latter part of a tax year (unless a business reverts to an accounting year that corresponds with the tax year) as the profits for a tax year will continue to be determined with reference to the business’ accounting periods.

This new method of calculating taxable profit will apply from the tax year 2024/25, rather than 2023/24 as previously planned.

A mechanism is required for existing businesses to transition from the old to the new regime and so special rules will apply in the transitional tax year 2023/24. In this tax year, some businesses will experience double taxation as they will be taxed not only on 12 months’ worth of profits from the end of the basis period for 2022/23; there will also be transitional profit based on the period from the end of those 12 months to 5 April 2024.

If the business has any overlap relief it will be able to use this against the additional profits arising in the transitional tax year to mitigate the enhanced tax charge arising in that year. ICAEW understands that there will be more flexibility to use this overlap relief than was set out in the draft legislation published in July.

Where additional taxable profits remain even after deduction of overlap relief, business owners will have the option to spread that additional profit over five years. Some respondents to the consultation on this measure, including ICAEW’s Tax Faculty, expressed concern that this additional profit could have a knock-on effect for other tax purposes in those years, such as the impact on personal allowances, high income child benefit charge and allowances for the purposes of contributions to registered pension schemes.

The faculty understands that the government is seeking to address these unintended consequences through changes to the draft legislation published in July.

Further details and an updated version of the legislation will be published by the government on 4 November which the Tax Faculty will be analysing.

Increasing independent representation on the OTS board

In an interesting development, the government has announced that it will legislate to increase the number of independent directors on the Board of the Office for Tax Simplification (OTS).

Currently, the OTS Board consists of up to eight appointments. The chair and tax director are government appointments with HM Treasury and HMRC appointing one each, leaving four vacancies for independent members.

The announced increase to 10 members would mean that the independent directors would then be in a majority.

ICAEW assumes that this development is one outcome arising out of the statutory five-year review of the OTS which concluded over the summer 2021. At the time of writing, we are awaiting the publication of the review.

ICAEW’s Tax Faculty met with HM Treasury over the summer to discuss the review and made a number of suggestions for improvements, although increasing the size of the board to give greater representation to independent directors was not one of them. ICAEW waits to see what other proposals might be suggested.

Trade remedies: DIT Secretary of State powers

As announced by the Secretary of State for International Trade on 25 October 2021, the government will legislate in Finance Bill 2021-22 for a mechanism to be established for the Secretary of State for International Trade to ‘call in’ trade remedies reviews being undertaken by the Trade Remedies Authority (TRA).

Trade remedies, or defence measures, are additional tariffs or quotas imposed to protect domestic industries from activities, such as dumping. After calling in a particular case, the Secretary of State will become responsible for determining the outcome of the review or reconsideration rather than the TRA.

Following the UK’s exit from the EU, the government transitioned 43 trade defence measures that had been implemented by the EU during the UK’s membership. The TRA is now reviewing these 43 measures to ensure they are suitable for the UK economy.

In light of the reviews completed already, it has become apparent that in some cases greater ministerial involvement is required, especially where there may be wider factors to consider which the TRA is not in a position or mandated to take account of.

Legislation in the Finance Bill 2020-21 will introduce a new power to enable the Secretary of State to make new regulations or amend existing secondary legislation. The provision will be treated as having come into force on 3 November 2021.

Introduction of public notice powers for non-duty tariff changes

Enabling legislation is to be made that will permit HMRC to make administrative changes to the tariff by public notice. Any changes that affect the amount of duty payable will continue to be made by regulations.

The aim of this is to allow routine technical changes to the UK’s tariff schedule to be implemented more quickly, which may benefit stakeholders who refer to tariff legislation for information. The measure will have effect from the date of Royal Assent to Finance Bill 2021-22.

Temporary modifications of taxation of employment income

• See “employment taxes”

Dormant assets scheme expansion

The government had previously announced that the dormant assets scheme would be expanded, from bank and building society accounts, to include certain assets from the pension, insurance, investment and wealth management and securities.

The forthcoming Finance Bill will include a measure to ensure that a capital gains tax charge will arise only when an individual identifies that their assets have been transferred into the scheme and they receive a payment in respect of those assets.