Tax changes outlined in draft Finance Bill 2020 – 2021
Tax changes outlined in draft Finance Bill 2020 – 2021
The Government has unveiled its draft legislation for the 2020 – 2021 Finance Bill (the Bill). The new proposals cover a number of measures that were previously announced in the 2020 Spring Budget.
To help you gain a greater appreciation for potential tax changes on the horizon, we have prepared a summary of some of the key measures outlined in the Bill:
SDLT surcharge for non-UK residents – This new surcharge will add an additional two per cent to all residential rates of Stamp Duty Land Tax (SDLT) where a non-UK buyer purchases residential property in England and Northern Ireland.
This new surcharge will be added to the existing additional surcharges, such as the three per cent surcharge for ‘additional homes’, and will take effect from 1 April 2021.
It will apply to UK residential transactions involving non-resident:
- individuals
- unit trusts
- partnerships
- corporate entities
- beneficiaries under life-interest
- bare trusts and trustees of other types of trust.
This will primarily affect overseas individuals purchasing residential property. However, overseas corporates that bulk-buy residential property will, in most cases, no longer benefit from claiming for multiple dwellings relief, which results in the residential rates applying in place of the bulk-buy commercial rates.
Corporate interest restriction (CIR) –The Bill aims to amend two technical points so that the existing CIR rules work as intended.
The first amendment relates to how the CIR rules interact with the UK real estate investment trust (REIT) rules and deal with potential issues regarding the allocation of a CIR disallowance, where a non-UK company is within the charge to UK Corporation Tax (CT) in respect of a UK property business but its residual business is not within the scope of CT.
The other amendment ensures that no penalties will arise for the late filing of an interest restriction return if there is a reasonable excuse.
New reliefs for housing co-operatives – The draft legislation in the Bill also relieves qualifying housing cooperatives, such as organisations that are neither publicly funded nor social housing cooperatives, from the 15 per cent ‘envelope’ rate of SDLT and the charge to the annual tax on enveloped dwellings (ATED).
The relief for the ATED will be applied retrospectively from 1 April 2020, while the SDLT relief will be introduced following the Autumn Budget later this year.
Amendments to HMRC’s civil information powers – New legislation will give HMRC powers to issue a ‘Financial Institution Notice’, that requires organisations, such as banks, to provide information about a specific taxpayer when requested.
This law will do away with the need for approval from an independent tax tribunal.
The Bill also includes a series of amendments to existing legislature aimed at tackling promoters and enablers of tax avoidance.
Alongside the Bill, the Government also launched several important consultations including:
Business rates review – HM Treasury will carry out a wide-ranging review of the business rates system, including a consideration of the strengths and weaknesses of the current system and the introduction of alternatives, such as dedicated property and online sales tax schemes.
R&D qualifying expenditure – HM Treasury will explore whether the scope of qualifying expenditure could be expanded to include data and cloud computing costs. However, the consultation also asks whether other qualifying expenditure should be restricted as a result to make the tax relief fairer.
Link: Finance Bill 2020-21
Do you know what your Personal Savings Allowance is? While most taxpayers in the UK will know the thresholds for Income Tax, a worrying few know the way in which personal savings can be subject to tax. With ISAs set for a significant overhaul, understanding the less tax-efficient saving options will soon be more important. How much tax do you pay on your savings? While your savings are not taxed, any interest generated by those savings could be subject to tax if it exceeds your Personal Savings Allowance. Depending on the rate of Income Tax you pay, your Personal Savings Allowance will differ. The thresholds are: £1,000 for Basic-rate taxpayers £500 for Higher-rate taxpayers £0 for Additional-rate taxpayers ISAs remain the more tax-efficient saving strategy as the interest generated from them is tax-free. It is therefore most effective to utilise the full £20,000 saving limit for an ISA as early in the tax year as possible to benefit the most from the accumulation of interest. How should tax on savings be managed? The main issue is that tax on savings is often overlooked, resulting in HMRC taking action for underpaid taxes. This will often manifest in a charge through PAYE, as employees are more likely to overlook this obligation. Those filing Self Assessment tax returns should already be declaring interest earned, so any compliance issue in that group points to a wider problem with handling tax obligations. When attempting to make the most of saving strategies, it is best to seek professional financial advice. This will be more important if the saving limit for Cash ISAs falls to £12,000 for under-65s in 2027 as proposed, leaving younger savers to have to find new ways to grow their wealth. Our professional team can help you to determine an effective saving strategy that suits your financial goals while helping you to be mindful of the tax obligations that you may face. We do not want to see anyone caught off-guard by an unexpected tax bill and understanding your exposure is vital for preventing this. Get in touch with our team to regain confidence in your saving strategy.
The £2,000 cap on National Insurance (NI) free salary sacrifice pension contributions was sold as a tax on high earners but, if you look closer, the opposite is true. In fact, the people most exposed are middle-income savers and the small businesses that employ them. For the so-called “squeezed middle”, it is yet another quiet hit to take. Why do the rules adversely affect middle-earners? From April 2029, salary sacrifice tax relief will continue to be available, but only the first £2,000 of employee pension contributions each year will be free of NI. Anything above that becomes liable to NI for both the employee and the employer and the full adverse effect is clear once the different rates of NI are accounted for. If a person’s total pension contributions are modest, say up to six per cent, those individuals who earn between £35,000 and £50,270 will pay an eight per cent NI charge on pension contributions above the £2,000 cap. By contrast, an individual whose earnings already exceed the upper earnings limit of £50,270 will pay employee NI at just two per cent on those same excess contributions. This imbalance in the NI system means that those on lower incomes could pay four times the NI rate on their pension savings in excess of the new threshold than the highest earners pay. How does this change affect employers’ National Insurance bills? Many employers currently share their own NI savings by topping up staff pensions, but a new 15 per cent employer NI charge on contributions above the cap makes those top-ups unaffordable for a lot of firms. As a result, some employees could see the overall efficiency of their pension saving above the cap fall by as much as 23 per cent once lost top-ups are counted. Even those who stay below the threshold are not safe, as the Office for Budget Responsibility (OBR) estimates that around 76 per cent of higher employer costs are eventually passed back to staff through weaker pay rises and trimmed benefits. Don’t wait for the change The good news is that there is time to plan, as the rules do not take effect until April 2029, which leaves room to act while current allowances still apply. If you are a middle earner, this is exactly the moment to review your pension strategy, weigh up complementary options such as ISAs and make sure your retirement plans stay on track. To talk through what the salary sacrifice cap means for you, please get in touch with our team.
When Rachel Reeves announced a temporary cut in VAT from 20 per cent to five per cent for family attractions and children’s dining over the summer holidays, the hospitality and leisure sectors broadly welcomed it. The scheme runs from 25 June to 1 September and is funded, according to the Treasury, by closing a tax loophole used by oil and gas companies with overseas operations. On the surface, this looks like good news worth welcoming. However, for the businesses applying the new rules, the reality of delivering the rate cut is more complicated than the headlines suggest. The rules shift from one service to the next How the cut works depends heavily on what is being sold. Admission tickets to amusement parks, water parks, zoos, museums, soft play and similar venues qualify, as do children’s and family tickets to cinemas, theatres and concerts. However, pay-per-ride attractions do not. Children’s meals only qualify when served from a clearly marketed, separate children’s menu. A smaller portion of an adult dish does not count, nor does a discounted adult meal or a takeaway. Season tickets and annual passes are generally excluded too. The result is that many businesses will apply two VAT rates at once on the same bill. Tills, accounting systems and front-of-house staff all need to handle that from day one, then revert again from 1 September. This adds an additional layer of complexity to VAT reporting that businesses need to consider right away. Encouraged, but not required The Government has urged businesses to pass the saving on to customers and the Competition and Markets Authority has new anti-profiteering powers to prevent unethical activity. Even so, there is no legal obligation to lower prices at the till and many businesses will weigh up rebuilding margin, reinvesting and matching competitors before deciding exactly what savings to offer to consumers. Given the wider cost challenges that businesses currently face, the scheme may not deliver the lift at the till that many customers are expecting. Right idea, wrong season? There is also a question of timing. The scheme targets the period when families already spend most on days out and when operators are near capacity. A cut would arguably do more for businesses in the quieter autumn and winter months. As designed, it looks more like household support than business stimulus. Any support for the sector is welcome, provided businesses seek the expert guidance required to manage obligations and make the most of any new opportunities. If you would like to discuss what the temporary VAT cut means for your business, please get in touch with our team.