TaxCalc Blog

Basis period reform

The government has confirmed the introduction of basis period reform to simplify the system for taxing self-employed people and business partnerships. The change, which will apply from 2024/25 with a transition year in 2023/24, will change the way profits are calculated for a tax year. This will now be based on the profits arising in the tax year itself, rather than on the profits of a 12-month set of accounts ending in the tax year.

The Government say the simplification will significantly reduce the burden of calculating overlap taxation and relief, and remove the tax deferral advantage possible under the old rules. Trading income will now be taxed on the same basis as property and investment income, creating a more consistent and aligned system that will greatly reduce the opportunity for error and confusion for businesses.

It will, however, mean that during that transitional year businesses who use a non-tax year accounting period will face a significant increase in their tax bill.

Annual Investment Allowance (AIA)

The Annual Investment Allowance (AIA) limit of £1,000,000 for qualifying expenditure on plant and machinery has been extended to cover purchases made during the period from 1 January 2022 to 31 March 2023. The limit was originally set to return to £200,000 from 1 January 2022.

This measure is intended to have positive outcomes for businesses by supporting and encouraging business investment, particularly those ineligible for the super-deduction, and by simplifying the tax relief for such investment.

Corporation Tax loss reform rules

Retrospective change to corporation tax loss reform rules with effect from 1 January 2019.

This measure makes changes to ensure that the legislation continues to work as intended by continuing to provide an exemption from the loss reform rules for companies in financial distress, enabling them to obtain full relief for carried-forward losses that offset profits arising from lease renegotiations where they adopt International Financial Reporting Standard (IFRS) 16.

Corporation tax increase

Corporation tax increase to 25% from April 2023 is to remain as planned. However, banks and building societies will get a reprieve as their surcharge is reduced from 8% to just 3%. Meaning that banks will only see a 1% increase in their tax rate from April 2023 compared to 6% for other trading companies.

The Government state that this measure seeks to maintain the contribution to the Exchequer from the banking sector at a sustainable level that does not have an adverse effect on the UK’s ability to attract and retain internationally-mobile business and jobs. Banks will continue to pay a higher rate of tax on their profits than other companies, and more than they do now, with their combined tax rate on profits increasing from 27% to 28%.

Capital Gains Tax payment deadline on property disposals extended from 30 days to 60 days with effect from today

The payment deadline extends from 30 days to 60 days for making Capital Gains Tax (CGT) returns and associated payments on account when disposing of UK land and property and is effective for disposals that complete on or after 27 October 2021.

There is also clarification that, for UK residents only, where a gain arises in relation to a mixed-use property that only the portion of the gain that is the residential property gain is to be reported and paid.

Clamping down on promoters of tax avoidance.

New powers for HMRC to seek freezing orders that would prevent promoters from dissipating or hiding their assets before paying the penalties that are charged as a result of them breaching their obligations under the anti-avoidance regimes.

New rules that would enable HMRC to make a UK entity, which facilitates the promotion of tax avoidance by offshore promoters, subject to a significant additional penalty.

New powers to enable HMRC to present winding-up petitions to the court for companies or partnerships operating against the public interest.

New legislation that would enable HMRC 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 leave avoidance arrangements.

Discovery assessments

Retrospective legislation has been introduced to confirm HMRC’s entitlement to raise discovery assessments for certain tax charges; most notably failure to declare a High Income Child Benefit Charge.

Where individuals fail to report and pay certain tax charges to HMRC, existing tax legislation provides that HMRC may issue “discovery” assessments to recover the tax owed. This measure does not change this policy but makes a technical clarification to clarify the law to provide legal certainty and maintain the status quo.

This part of the measure is introduced with retrospective effect for HICBC, Gift Aid and the pensions charges. It does not introduce any additional obligations or liabilities for customers. With prospective effect, the measure provides that discovery assessments may be used to recover any income tax or capital gains tax that ought to have been assessed but has not been assessed.

Cultural Relief Rate Rises for Theatre, Orchestra, and Museums and Galleries Exhibition Tax reliefs.

This measure temporarily increases the headline rates of relief for the Theatre Tax Relief (TTR), Orchestra Tax Relief (OTR), and Museums and Galleries Exhibition Tax Relief (MGETR) for expenditure taking place from 27 October 2021, gradually being reduced down to normal rates by 1 April 2024.

Implementation of VAT rules in free zones.

This measure will enable the operation of free zones in Great Britain by introducing an additional element to the VAT free zone model. This is a VAT exit charge for goods that have benefited from a zero-rated supply and where, after the goods leave the free zone procedure, there is no onward taxable supply of the goods within a time limit. It also makes consequential amendments to other legislation.

Confirmation of the previously announced increase to the rate of income tax applicable to dividend income in line with the health and social care levy.

This measure increases the rate of income tax applicable to dividend income by 1.25%. The dividend ordinary rate will be set at 8.75%, the dividend upper rate will be set at 33.75% and the dividend additional rate will be set at 39.35%. The dividend trust rate will also increase to 39.35% to remain in line with the dividend additional rate.

The changes will apply UK-wide and will take effect from 6 April 2022.

A new residential property developer tax

This measure will introduce a new tax on company profits derived from UK residential property development.

The tax will be charged at 4% on profits exceeding an annual allowance of £25 million and will be included in the Corporation Tax returns of those companies liable to the new tax.

Tonnage Tax Reform

This measure will make substantive reforms to the Tonnage Tax regime, designed to make it easier for shipping companies to join the regime, ensure they are not disadvantaged compared with firms operating in other countries, reduce unnecessary administrative burdens, and boost the use of the UK flag.

Van benefit charge and fuel benefit charges for cars and vans

This measure increases the van benefit charge and the car and van fuel benefit charges by the Consumer Price Index from 6 April 2022. The flat-rate van benefit charge will increase to £3,600; the multiplier for the car fuel benefit will increase to £25,300; and the flat-rate van fuel benefit charge will increase to £688.