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The draft legislation published in January 2017 has been amended for various points including a one year deferral to the quarterly reporting start date for unincorporated businesses and landlords with turnover below the VAT threshold
In Budget 2015, the Government announced its intention to digitise the tax system by 2020. A substantial period of consultation followed with some draft legislation published on 31 January 2017.
This draft legislation confirmed that unincorporated businesses and landlords would need to start using the new digital system from April 2018. Today’s announcement delays the start date by one year where a business' turnover is below the VAT threshold (currently £83,000). The revised start dates are as below.
Further minor changes have also been made to the draft legislation.
Deep concerns regarding the ambitious timescale have been raised since day one and so a delay in the introduction for smaller unincorporated businesses is welcome. These smaller businesses are the very ones that require more time to acquire and set up new systems, either themselves or by using a tax agent.
However, concerns remain around the additional compliance burden faced by businesses and landlords under this system given the requirement, not only to retain records digitally, but also to submit information to HMRC quarterly, a more frequent basis than is currently required. In addition there are concerns around the delay before many agents and their clients can join the pilot.
It remains clear that the Government and HMRC are committed to the introduction of making tax digital so taxpayers, and their agents, need to give thought to putting systems and processes in place in the near future.
As part of the digitisation of the tax system, a consultation will take place shortly looking at the tax administration system including the related interest and penalties
A consultation document will be published on 20 March 2017 to consider design aspects of the tax administration system, including interest and penalties. This forms part of the wider project around Making Tax Digital (MTD).
The stated aims of the consultation are to ensure a consistent approach is adopted across taxes and that the system is simplified for taxpayers. Clearly, the current UK tax system contains inconsistencies and complexity. As such, any attempt to improve this is welcome.
In addition, it will be important to ensure that any legislation in this area does not add further layers of burdens on businesses that will be required to comply with MTD.
NICs will be removed from the effects of the Limitation Act as announced at the 2016 Autumn Statement. The time limits for recovery of NIC debts will also be aligned with those for tax
Unlike other taxes, such as income tax, NIC is currently subject to the Limitation Act 1980, which means any claim by HMRC for unpaid contributions can be made no later than six years after the statutory due date.
It was announced at the 2016 Autumn Statement that legislation would be enacted to bring NIC in line with other taxes to increase the period of time in which HMRC can collect unpaid tax. The legislation was to be introduced from April 2018, but this will now be pushed back to allow a full consultation on the alignment.
As noted when this was announced at the 2016 Autumn Statement, this measure represents an increase in HMRC collection powers. As such, a detailed consultation is required to ensure the necessary safeguards are in place for taxpayers and it is reassuring to see that sufficient time is being allocated for the process to be completed.
Measures are introduced from 8 March 2017 to prevent promoters avoiding the POTAS regime by using reorganisations or intermediaries.
Where a threshold condition is met, for example non-compliance with DOTAS (disclosure of tax avoidance schemes), that is deemed to be significant, then HMRC can issue a promoter with a conduct notice under the POTAS regime. The conduct notice may, amongst other things, require the promoter to provide more detailed information to its clients, or to refrain from promoting certain contrived or abnormal tax arrangements. With effect from 8 March 2017 the rules determining whether a body corporate or partnership being used as a promoter is controlled by a person or persons to whom the threshold conditions apply have been tightened.
As a result of these changes it will be more difficult for promoters to avoid the consequences of the POTAS regime by putting a person or persons between themselves and the promoting business.
A new penalty will be introduced for those who 'enable' the use of tax avoidance arrangements that are subsequently defeated.
Revisions have been made to extend the enablers regime to those who seek to avoid NICs and clarify when enablers will be named.
As part of the Government’s commitment to deter taxpayers from engaging in tax avoidance arrangements, a new penalty will be introduced for any person who enables another person or business to use an abusive tax avoidance arrangement that is later defeated by HMRC. It will apply to enabling activity taking place on or after the date of Royal Assent of Finance Bill 2017.
Revisions to previously issued draft legislation give further detail on how the GAAR advisory panel will consider ‘enabler cases’, extend the regime to those seeking to avoid NICs and clarify when enablers will be named.
It is perfectly understandable that the Government is determined to continue to tighten the screws on those who market abusive tax avoidance schemes that do not work. The widening of the scope of the regime to cover NIC is to be expected in a climate where the importance of NIC for the exchequer is critical.
A key element will be how the legislation is used in practice and the extent of the protection given by taking 'reasonable care'.
Following the November 2016 announcement and consultation on sanctions and conditionality for the hidden economy the Government has refined its proposals.
The proposals concerned making access to certain licenses or services being conditional on tax registration, strengthening the 'failure to notify' penalty; and improving the monitoring of taxpayers found to be operating in the hidden economy. Following consultation, the Government will take further action including:
These measures to tackle the hidden economy are welcomed as part of HMRC’s drive to reduce the ‘tax gap’, while considering the potential impact on the compliant sector of the economy. As with all such measures, the key is to ensure the implementation is properly targeted and efficiently operated.