Lindsey Wicks of ICAEW looks at imminent changes to a variety of tax rules.
With a Budget date of 3 March, this topic is arguably a dangerous one to be tackling. However, many measures have already been planned and legislated. We’ll have to wait and see whether the Budget will announce adjustments to the start (or end) dates of some of these measures or introduce others, perhaps with immediate effect.
VAT
Payment deferral
One of the early easements announced in response to the pandemic was the deferral of certain tax payments, including VAT payments. Businesses who deferred their VAT payments in the period from 20 March 2020 to 30 June 2020 must pay the accumulated VAT by 31 March 2021 if they’re not opting into the VAT deferral new payment scheme.
The VAT deferral new payment scheme allows the business to pay the deferred VAT in up to 11 smaller interest-free instalments. The first instalment must be paid before the end of March 2021 and all instalments must be paid by the end of March 2022. The deadline for opting into the deferral scheme is also 31 March 2021.
Reclaiming EU VAT
UK VAT-registered businesses that incurred EU VAT up to 31 December 2020 have until 31 March 2021 to submit claims for that VAT under the European VAT reclaim scheme.
Where a business incurs EU VAT on or after 1 January 2021, they must use the 13th Directive paper-based reclaim process. This involves separate claims being made to each country and businesses will likely find that the claims process differs from country to country.
Reduced rate for hospitality, attractions and holiday accommodation
The 5% reduced rate for hospitality, attractions and holiday accommodation was announced as part of Chancellor Rishi Sunak’s ‘plan for jobs’ on 8 July 2020, applying from 15 July 2020. The rate was originally set to return to 20% on 13 January 2021, but this was subsequently changed to 1 April 2021.
Making Tax Digital (MTD) for VAT
The requirement for digital links within MTD for VAT software starts in April 2021, with digital links required in the first VAT return period starting on or after 1 April 2021. This is another example of a long-anticipated requirement, as it was originally due to apply from April 2020 (or October 2020 for those who had a deferred start date).
While MTD for VAT will be mandatory for all VAT-registered traders from 2022, changes expected in 2021 will affect VAT registered businesses not yet in MTD (see practical point 267 in the December 2020 issue of TAXline). For example, to enable HMRC to consolidate all VAT records on to its new Enterprise Tax Management Platform in advance of MTD for VAT becoming mandatory for all, HMRC will no longer accept VAT returns using software that uses eXtensible Markup Language (XML) to make the submission from 8 April 2021 (check with your supplier).
Business tax
Capital allowances for business vehicles
Changes to capital allowances for vehicles were announced at Budget 2020. Many of the first-year allowances relating to business vehicles were due to expire on 31 March 2021. Some allowances are extended until 2025, but CO2 emissions thresholds have been reduced to encourage business purchases of lower emission vehicles.
From 1 April 2021:
- 100% first-year allowances for cars will only be available for electric cars or cars with zero CO2 emissions;
- 18% writing down allowances are only available on purchases of cars with CO2 emissions not exceeding 50g/km; and
- where a car has CO2 emissions exceeding 50g/km, writing down allowances will only be available at the special rate of 6%.
The reduction in the emissions threshold to 50g/km from April 2021 will also apply to the 15% restriction for leased vehicles.
First-year allowances for zero-emission vans and gas refuelling stations will continue until April 2025.
At the time of writing, legislation has not been published to enact these measures, although a reminder of the changes was included in HMRC’s Agent Update 81 and Employer Bulletin 87.
Cap on payable R&D tax credit
A cap on the amount of the payable research and development (R&D) tax credits for small and medium-sized enterprises (SMEs) had been due to come into force from 1 April 2020. Budget 2020 announced a delay to this measure to allow for a period of further consultation.
The cap will now come into force for accounting periods beginning on or after 1 April 2021. The cap limits the amount of payable R&D tax credit that an SME can claim to £20,000 plus 300% of its total PAYE and national insurance contributions liability for the period.
The cap has been introduced to combat fraudulent claims. However, there was concern that this would unfairly penalise companies genuinely undertaking R&D. Therefore, the cap will not apply to those companies who:
- have employees creating, preparing to create or managing intellectual property; and
- do not spend more than 15% of their qualifying R&D expenditure on subcontracting R&D to, or the provision of externally provided workers by, connected persons.
The Tax Faculty commented on the draft legislation as ICAEW REP 01/21.
Construction industry scheme
In addition to the VAT domestic reverse charge, the construction industry also has to contend with changes to the construction industry scheme from 6 April 2021. The changes include:
- the introduction of a set-off amendment power;
- limiting the exclusion for the cost of materials to cases where the subcontractor directly incurs the cost;
- changes to the definition of a deemed contractor; and
- expanding the scope of the CIS registration penalty.
Further details can be found in an article by Howard Royse in February 2021 issue of TAXline.
The Tax Faculty commented on the draft legislation in ICAEW REP 05/21.
Employers
Optional remuneration arrangements
The transition period ends on 5 April 2021 for optional remuneration arrangements made pre-6 April 2017 for cars with CO2 emissions above 75g/km, accommodation and school fees. This means that the ‘modified cash equivalent’ rules apply when calculating the benefit in kind for the 2021/22 tax year onwards. Further details can be found in TAXguide 21/20 Employment Tax: round up of 2020/21 and a look ahead.
Off-payroll working
The off-payroll working rules are due to come into force in the private sector on 6 April 2021. The object of the rules is to ensure that PAYE is accounted for where a contractor would have been an employee of the client but for the fact that the contract with the client is with the contractor’s personal service company rather than the contractor personally. The rules are an extension of (with adaptations) the rules that currently apply in the public sector.
The introduction of these rules has been delayed previously. Given the amounts expected to be raised, any further delay may seem unlikely. However, we said that last year too.
The Tax Faculty has provided many webinars and TAXguides on this topic to support members in preparing for this change. Visit our IR35 hub at icaew.com/ir35.
Van benefit charge
From 6 April 2021, the van benefit charge is reduced to zero for employees provided with vans that produce zero carbon emissions.
Employing veterans
From 6 April 2021, employers of veterans will be entitled to a 12-month exemption from national insurance contributions (NIC) for their first year of civilian employment. The exemption only applies to earnings between the secondary threshold and the upper secondary threshold (UST), meaning that the employer will be liable to pay standard rate employer’s NIC on earnings above the UST.
The exemption will apply where the veteran was employed before 6 April 2021 and is still within their first year of civilian employment on 6 April 2021, but only to earnings paid on or after 6 April 2021.
A manual claim will be required for the 2021/22 tax year with the ambition that the claim will be made in real time from April 2022 onwards. The exemption will initially be available for a three-year period until April 2024.
Stamp taxes
A 2% stamp duty land tax surcharge for purchases of residential property by non-UK residents comes into force on 1 April 2021. This change is due to coincide with the date when the residential thresholds return to normal for stamp duty land tax, land and buildings transactions tax, and land transaction tax following the stamp duty holiday.
Social investment tax relief
Social investment tax relief forms one of the four venture capital reliefs. Introduced in 2014, the last date for qualifying investments is 5 April 2021. Investors can claim income tax relief at 30% on annual investments of up to £1m and can claim carry back relief to the tax year preceding the year of investment.
There is also the opportunity to defer capital gains by matching the amount invested against gains made in the three years prior to, or one year following, the date of the investment (but only where the gain accrues before 6 April 2021). Investors also pay no capital gains tax on any gain on the social investment.
Will the scheme end in April? That’s an interesting question. The government published a call for evidence in April 2019 to inform its decision on whether to extend the scheme beyond 2021. No outcome has been published and the call for evidence indicated that take up of the scheme had been much lower than expected.
About the author
Lindsey Wicks is ICAEW’s Technical Editor