The Chancellor may have postponed his Budget Statement to Spring 2021, but the number of announcements and tax policy changes continue remorselessly. Last week the Treasury announced in a written statement the Government’s reaction to a number of tax consultations and launched some new ones, including the long-awaited consultation on MTD for corporation tax. There is also an important change for capital allowances.
Here is a summary:
- MTD for corporation tax
The long-awaited consultation document on MTD
for corporation tax, has been issued with the consultation period open until 5 March 2021. What you need to know for now is:
- MTD for corporation tax will apply to ALL entities that pay corporation tax, with no minimum turnover threshold.
- Quarterly reports summarising income and expenses will be required.
- A pilot will start in 2024.
- MTD for corporation tax will be compulsory from 2026 (but possibly later).
- HMRC will not provide free software for MTD filing.
- Annual Investment Allowance cap extended
The £1m annual investment allowance (AIA) cap was due to revert to £200,000 on 1 January 2021. The ATT called for an extension of the higher AIA cap in September and again in October, and it appears the Treasury listened. The AIA
cap will be held at £1m until 1 January 2022.
- R&D tax credit PAYE cap
The cap on the amount of payable R&D credits, linked to the amount of PAYE and NIC payable by a small company, was removed in 2012. But in 2018 Chancellor Philip Hammond announced he would reintroduce a cap, after consultations
which stretched in 2020.
The government has now decided the R&D tax credit cap will be £20,000 per period plus 300% of the PAYE and NIC payable for the period. This will take effect for periods starting on and after 1 April 2021.
- Reform of the CIS
This proposed reform is framed as tackling abuse of the construction industry scheme (CIS). The changes will take effect from 6 April 2021 and will:
- allow HMRC to amend the CIS repayment claimed on the EPS
- increase penalties for supplying false information to HMRC relating to the CIS
- change the definition of deemed contractors
Next year promises to be a particularly challenging one for the construction industry, as the VAT domestic reverse charge commences on 1 March, also these new CIS rules and the off-payroll regime for the private sector both start on 6
April 2021.
- Off-payroll working
There was an error in the off-payroll legislation contained in FA 2020, which caused great consternation in the contractor sector, that would have widened the definition of an intermediary to include both umbrella companies and agencies. HMRC has responded, and the error will be corrected in FA 2021 to take effect from 6 April 2021.
The number and frequency of legislative changes affecting tax is becoming more difficult for practitioners to absorb and communicate to clients to whom they effect; if you are uncertain about how a particular announcement may affect you or your business
please ask.
Noel Guilford