Following the Budget in early March, the Government published a number of consultation documents which provide some interesting insights into the focus and direction that the government and HMRC are considering taking with regards to taxes over the next few years.
There was some disappointment that there were no further comments on the possible anticipated changes to taxation, such as to capital gains tax and tax relief on pensions.
However, on reflection the consultation documents highlight various recurring themes, which may be of equal importance to taxpayers, their advisers and Government.
Tax System for the twenty first century
These themes include the need to ensure that the tax system is fit for purpose for the twenty first century. This includes extending Making Tax Digital for both income and corporation tax purposes, whilst at the same time making it easier for taxpayers to be compliant.
The suggestions considered include learning from other countries as to:
- how to harness information already provided to HMRC, to avoid duplication, whilst also enabling tax returns to be pre-populated;
- aiming for consistency between processes and rules for different taxes; and
- using real time information to estimate tax liabilities and accelerate when tax is paid, so minimising cash flow problems for taxpayers in an economic downturn.
It has been acknowledged that some of these potential changes may create problems for businesses where the income is not generated on a regular basis, or where taxpayers find tax payments needing to be advanced. These may have economic rather than just cash flow implications.
Improving Standards of Tax Advice
The consultation documents also include the recurring theme of combating poor standards of tax advice by some advisers and building on the existing powers available through the Disclosure of Tax Avoidance Schemes rules.
The common themes here are to define "tax advice", ensure that the advisers have appropriate insurance, give HMRC powers to either ring fence advisers' assets or apply for winding up petitions and holding UK parties responsible where the adviser is non-UK based. The government also focuses on the need to educate taxpayers about the implications of being involved in what may be, or are perceived, as high-risk tax arrangements.
Improve reporting overseas income & gains
Overall, there is a desire to educate taxpayers who have overseas interests to ensure that they accurately report the taxable income or gains first time. This is linked to HMRC receiving much more information from overseas tax authorities through the Common Reporting Standards (CRS). Although this information is not always user friendly, it has highlighted inconsistencies in reporting of overseas taxable transactions.
It has been suggested that information received via CRS should be shared with the taxpayer or their adviser to enable any uncertainty to be resolved promptly.
Notification of Uncertain Tax Treatment by large businesses
This is a second consultation. It builds on the desire to ensure that HMRC are informed earlier where a large company or a LLP has chosen an uncertain tax treatment for a transaction that is filed in a return submitted after 30 April 2022.
The rationale being that the sooner that HMRC are aware of such a situation, they can discuss the matter with the taxpayer concerned. This has two benefits, firstly, the discussion occurs at a time this is relatively fresh in the mind of the taxpayer and secondly, before this may apply to more than one set of tax computations.
This covers both new transactions that have not been considered by the tax legislation and also where the taxpayer has used an interpretation or application, for a transaction, that is contrary to HMRC's known position.
Many of these consultations have highlighted areas where change is needed and should be welcomed. However, some of the issues are not easily resolved and it is accepted that at this time HMRC has significant pressure on its limited resources. Will HMRC be able to focus on these? Only time will tell.
Also, taxpayers must be aware that if HMRC takes time to educate or interact with them, then future failures to comply with the tax system may result in higher penalties being applied.
Originally published June 2021.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.