UK’s first 'tax day' announces strategic look at tax system
Several of the newly announced policies take aim at non-compliance, including action against promoters of tax avoidance schemes. As well as draft guidance on tackling promoters of tax avoidance, and the outcome of its consultation on disguised remuneration, the government has begun further consultation on helping taxpayers get offshore tax right and raising standards in the tax advice market.
One proposal is to require tax advisors to have professional indemnity insurance (PII), a suggestion welcomed by professional bodies including STEP, the Law Society, the Association of Taxation Technicians and the Institute of Chartered Accountants in England and Wales (ICAEW), although some stressed the need not to impose further burdens on professional advisors who already need to hold PII to practice. STEP already requires its members to hold appropriate PII. 'PII provides assurance to clients that their tax advisor is acting in their best interests and raises public confidence in them as a professional and any professional body of which they are a member', commented STEP's Professional Standards Manager Sarah Manuel.
A key policy is the tightening of the rules on holiday lets, to deter second home owners in England avoiding council tax by registering for business rates, from which they can usually obtain relief, without actually letting the property. The new rules will allow registration for business rates only where the property is provably commercially rented out for a substantial part of the year.
A simplified inheritance tax (IHT) reporting procedure is also being introduced from 1 January 2022, so that more than 90 per cent of non-taxpaying estates will no longer have to complete IHT forms when probate or confirmation is required. However, a wider reform of the capital gains tax and IHT rules, along the lines proposed in 2020 by the Treasury's Office of Tax Simplification, has not yet been confirmed.
The government has also confirmed in its response to the feedback on its taxation of trusts consultation that it does not see any need for comprehensive reform. It stated that it will keep the issues raised under review to ensure that its long-term approach to the taxation of trusts meets its objectives. In the shorter term, it will continue to review specific areas of trust taxation on a case-by-case basis, with responses relating to those areas forming part of the consideration.
'Tax Day proved less exciting than had been anticipated, and disappointing to those who hoped for more constructive approaches to the taxation of trusts', commented Simon Jennings TEP, a member of the STEP UK Technical Committee. 'As usual, much focuses on further measures to combat avoidance, particularly in offshore matters, and particularly as regards professional intermediaries and promoters. While efforts to improve standards amongst tax advisors has some support from the professional bodies, it is hoped that such initiatives will not simply raise the cost for taxpayers, particularly for straightforward compliance. The review of the effectiveness of tax simplification may be welcomed, if it ensures that the aims are more effectively achieved.' The reduction in reporting for IHT is encouraging and to be applauded, he added.
The government is also looking at increasing the frequency of tax payments in order to bring the payment of income tax and corporation tax closer to the point when the income arises, although no changes will be implemented in this parliament.
The principal proposals on business tax related to clarifying and strengthening transfer pricing documentation and further consultation on rules forcing businesses to notify uncertain tax positions. The implementation date for this has been pushed back to April 2022. Review of the business rates system is also continuing, with firm proposals due to appear later in the year.
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