The Scottish Budget was presented on 9 December 2021. As expected, no changes are proposed to the five Scottish income tax rates applicable to the non-savings, non-dividend income of Scottish resident taxpayers (19%, 20%, 21%, 41%, 46%) for 2022/23. Inflationary increases are proposed for starter and basic rate bands, whilst the higher and top rate thresholds will remain frozen in cash terms at £43,662 and £150,000 respectively. The Scottish government’s summary factsheet on the income tax changes is here. No changes were announced on Land and Buildings Transaction Tax (LBTT) rates and bands. A call for evidence on the operation of LBTT’s 4% Additional Dwelling Supplement (ADS) will be launched ‘shortly’. Scottish Landfill Tax rates will be increased to keep them consistent with rates in the rest of the UK. On business rates, the 100% relief for businesses in the retail, hospitality, leisure and aviation sectors is still due to come to an end in April. To avoid a cliff edge, there will be 50% relief for those businesses for the first three months of 2022/23, capped at £27,500 per ratepayer. Full rates relief for some small businesses will be maintained for 2022/23. The full Budget documents are here.
OECD: Government COVID-19 support helped shield OECD tax revenues
According to the OECD’s 2021 edition of Revenue Statistics, published on 6 December, OECD countries did not experience an acute decrease in tax revenues during the COVID-19 pandemic compared to the global financial crisis, partly thanks to economic support measures governments put in place. The report also finds that many of the tax policy measures implemented to support households and businesses often had a direct revenue cost via reductions in tax liabilities, enhanced tax credits and allowances and reductions in tax rates. The sharp reduction in economic activity in 2020 reduced labour force participation, household consumption and business profits, further affecting tax revenues, although the shock was shorter and more sector-specific than the global financial crisis, contributing to its more muted impact on tax revenues. Corporate income tax revenues saw the largest average decrease (0.4 p.p. of GDP, with declines in 26 countries); and lower fuel use due to mobility restrictions led to a small but widespread decrease for excise revenues (0.1 p.p. on average, with declines in 28 countries). By contrast, personal income taxes and social security contributions saw an increase in revenues, on average (by 0.3 p.p. in both cases, and in 28 and 29 countries respectively). The fact that revenues from these two taxes held up most likely reflects that governments provided considerable support to maintaining the connection between workers and the labour market in this crisis. No change was seen in property taxes or VAT as a share of GDP, on average.
Environmental tax roadmap
In April 2021, the Public Accounts Committee (PAC) published its report on Environmental Tax Measures. In their response, the government stated that it would consider the pros and cons of setting out a longer term roadmap on tax and net zero. In a letter, published on 6 December 2021, Exchequer Secretary Helen Whately wrote to the Committee's Chair (Dame Meg Hillier MP) with further thoughts on this matter. Inter alia, the Exchequer Secretary states, "Roadmaps on tax can offer certainty to business and individuals to support future planning. However, it is not always appropriate for the government to pre-announce tax reforms given the issues caused by forestalling activity and wider market uncertainty. The Net Zero Strategy notes that there is a great deal of uncertainty inherent in any modelling as far into the future as 2050, which is highly sensitive to economic, societal, and technological developments. Given this, a tax roadmap could ultimately give a false sense of certainty.”
FRC: Areas of supervisory focus for 2022/ 23: Deferred tax asset recognition
On 3 December, the Financial Reporting Council (FRC) issued a press release titled FRC announces areas of supervisory focus for 2022/23. The press release states that the FRC's Corporate Reporting Review team will conduct six thematic reviews during the next year, included one on Deferred Tax (IAS 12). There will be a particular focus on disclosures around deferred tax assets and whether the evidence supporting the recognition of deferred tax assets for losses is sufficiently robust. The FRC will aim to stagger the work and release their findings, which may take a range of forms, over the course of the year.
HMRC: self-assessment and self-serve Time to Pay facility
HMRC have issued a press release about self-assessment taxpayers and use of their self-serve Time to Pay facility. The self-serve Time to Pay service allows self-assessment taxpayers to manage how they pay their tax liabilities. They can use the online service for tax liabilities of up to £30,000 without the need to talk to HMRC. The service will create a bespoke monthly payment plan for the taxpayer based on how much tax is owed and the length of time needed to pay. Last year, 123,000 taxpayers used self-serve Time to Pay to spread the cost of their 2019 to 2020 tax bills. Taxpayers can set up their own Time to Pay arrangement online using the link here, subject to meeting certain conditions.
Code of Practice on Taxation for Banks: Annual Report 2021
The Code of Practice on Taxation for Banks was first introduced in 2009 and was strengthened in 2013, in particular to introduce more transparency. Finance Act 2014 provided that HMRC is required to publish an annual report on the operation of the code. The annual report for 2021 has been published.
Forthcoming Dbriefs webcast
There are several Dbriefs webcasts coming up starting with the December UK Tax Monthly Update on Tuesday 14 December at 12.00 GMT/13.00 CET, providing an update on corporate, employment, and indirect taxes. There is a Dbriefs webcast from our ESG series on Wednesday 15 December at 12.00 GMT/13.00 CET for 45 minutes – Plastic Packaging Taxes – Preparing For Implementation, hosted by Amanda Tickel. We finish off the year with G20/OECD The Digitalised Economy – Model Rules For Global Minimum Tax (Pillar Two), hosted by Alison Lobb, on Friday 17 December at 14.00 GMT/15.00 CET. You are also welcome to catch up with any Dbriefs you may have missed on demand. To find out more visit our website.
Umbrella companies consultation
HM Treasury (HMT) have published a consultation relating to the supply of staff through umbrella companies. In relation to VAT, HMT is concerned that mini-umbrella companies (MUCs) are being used as vehicles for abusing the VAT flat rate scheme, or for perpetrating missing trader fraud (echoing HMRC’s guidance published in May 2021). The consultation also mentions that some umbrella companies (for example, those in the medical sector) have been incorrectly applying VAT exemption to their services, or have been purporting to set up joint employment contracts with agencies. In light of this, it is perhaps unsurprising that HMRC have updated Notice 701/57 to clarify that the nursing agencies’ concession “does not apply to umbrella companies supplying services of staff to a recruitment agency. It only applies to the direct provision of staff. For example nurses and nursing auxiliaries to a health provider by a business acting as a principal” (para 6.6).