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What to look out for in the forthcoming Finance Bill
In line with the approach to making tax policy set out in the government’s documents ‘Tax Policy Making: a new approach’, published in 2010, and ‘The new Budget timetable and the tax policy making process’, published in 2017, the government has published tax legislation in draft for technical consultation before the legislation is laid before Parliament.
Draft clauses for the next Finance Bill, which will largely cover pre-announced policy changes, have been published along with accompanying explanatory notes, tax information and impact notes, responses to consultations and other supporting documents.
Some of the changes that will likely affect most practitioners and their clients are set out below.
Income tax changes affecting the self-employed
With effect from 2023/24, sole traders will be assessed to income tax on their tax year (6 April-5 April) trading profits, rather than the accounting year trading profits as is currently the case. This will remove the complications related to the basis period rules, eliminate the issue of overlap profits arising and not relieved until the business ceases, and make the tax basis uniform across all sources of income aligning the tax basis for trading income with that currently applicable to other income sources (property, investment, dividend income).
The year of transition will be 2022/23 – the transition period will begin the day after the end of the basis period and end on 5 April 2023, at which point relief for all outstanding overlap profits will be given and accounting year ends for all unincorporated businesses will be aligned with the end of the tax year and trading profits apportioned to 5 April.
The following simplifications are suggested:
- For businesses commencing after 31 March and with accounting year end dates between 31 March and 4 April (inclusive), profits arising in the year of transition will be disregarded and deemed to arise in the following tax year 2023/24.
- For businesses commencing after 31 March of a tax year, trading profits will be deemed to be arising in the following tax year (2023/24).
- For businesses with accounting year-end date falling late in the tax year, profits will be taxed in the following tax year.
- The above simplification measures are also agreed in relation to unincorporated businesses generating property income. In addition, property income businesses with an accounting year end of 31 March will not need to approportionate income to 5 April – income as at 31 March will be deemed to be the equivalent of accounting profits for the tax year.
For businesses with higher profits in 2022/23 due to the change in the basis of assessment, an election to spread the additional profits over a period of up to five years from 2022/23 is being considered (20% of the transition year profits taxed each year) although it will be possible to make an election to accelerate this to reduce the amount of profits still to be taxed in the later years.
Details will be finalised following consultation.
Read the draft legislation and details of the measures to be introduced.
Corporation tax – structures and buildings allowance
Additional requirements will be to make SBA claims easier and increase the accuracy of claims for subsequent owners of buildings and structures. SBA allows companies to claim a 3% deduction on qualifying expenditure on constructing, renovating, converting or acquiring non-residential structures and buildings from the point when the building was brought into qualifying use, or the date qualifying expenditure is incurred in situations where the allowance period commences from this later date.
Effective from the Royal Assent date for the Finance Bill 2021-22, companies will be required to include in the allowance statement (per section 270IA CAA01), the date the qualifying expenditure is incurred, to highlight the date from which SBA deductions commence.
Draft legislation and explanatory note can be found at Capital allowances: amendment to allowance statement for structures and buildings allowance.
Anti-avoidance
HMRC’s powers to target promoters of tax avoidance will be increased:
- power to impose freezing orders preventing promoters from dissipating or hiding assets before paying the penalties for breaching their reporting anti-avoidance obligations under the Promoters of Tax Avoidance Scheme (POTAS), Disclosure of Tax Avoidance Schemes (DOTAS), and Disclosure of Avoidance Schemes for VAT and other Indirect Taxes (DASVOIT)
- power to impose significant penalties on UK entities facilitating the promotion of tax avoidance by offshore promoters
- power to present winding-up petitions to the court for companies operating against the public interest
- power to name promoters, details of the way they promote tax avoidance, and the schemes they promote, at the earliest possible stage, to warn taxpayers of the risks and help those already involved to get out of avoidance.
HMRC will also be able to publish information or documents relating to tax avoidance arrangements discovered to help the public to identify and understand such arrangements and their risks.
More details of the measures can be found at New proposals to clamp down on promoters of tax avoidance.
The consultations will close on 14 September 2021; you can view a full list of the announcements that include a tax information and impact note (TIIN), draft legislation and an explanatory note providing a more detailed guide to the legislation.