U.K. Eyes Property Taxes, Business Reporting in New Rollout

LONDON (Capital Markets in Africa) — The U.K is calling for new business tax reporting requirements and changes to how rental properties are taxed among dozens of new proposals announced on Tuesday.

The proposals, through a series of consultations and policy papers released during the government’s so-called tax day, comes more than two weeks after Chancellor of the Exchequer Rishi Sunak announced plans to raise corporate taxes as part of the government’s spring budget.

Among the new tax proposals are changes to how empty rental properties are taxed and a requirement that big businesses report tax arrangements they think maybe challenged by Her Majesty’s Revenue & Customs. The government also announced plans to drop a carbon tax on emissions, opting instead to move ahead with its carbon trading system.

But some tax advisers had expected broader updates aimed at big-ticket issues like revamping the taxation of private assets—previewed in a consultation earlier in the year—and employment and environmental taxes, said Melissa Geiger, KPMG UK’s head of tax policy.

“There is only one conclusion, that we are likely to see many difficult decisions pushed back to Autumn, and we could expect a bumper Budget for the taxation of businesses and individuals,” she said in an email.

The government outlined proposals making it easier for companies to change value-added tax arrangements during the pandemic, asking tax advisers to have professional indemnity insurance, reducing the number of inheritance tax forms, requiring additional transfer pricing documentation, and giving tax officials more power to stop tax avoidance.

Tuesday’s announcement will “help the country upgrade and digitize the UK tax system, tackle tax avoidance and fraud, among other things,” Treasury Financial Secretary Jesse Norman said in a statement.

Tax fairness advocates had hoped for policies aimed at taxing the rich.

“Tax day has turned out to be a bit of a flop,” Robert Palmer, executive director of Tax Justice UK said. “The government has announced some worthy tinkering around the edges.”

“The proposals to tackle tax dodging are unlikely to make much difference. The big issues in the tax system—how to tax wealth properly, what to do about property taxes and tackling the climate crisis—have been largely punted to another day,” he said.

Uncertain Tax Positions
The government published responses to a consultation into a new requirement for large businesses to report any tax position they take that HMRC may challenge.
The proposal is an attempt to reduce the government’s tax gap—the amount it expects to collect versus the amount it ultimately recovers.

Big businesses had objected to the proposal, arguing that the requirement was far too subjective and required businesses to predict HMRC’s position.

To address those concerns, HMRC proposed an objective test that would determine whether a legal position taken by the business will trigger the rule. The test will be included in a second consultation, which will conclude June 1.

To address tax avoidance, the government also proposed targeting promoters of such schemes and asked for feedback on ways to improve the collection of international tax debt. The government wants to give HMRC the power to freeze the assets of promoters and penalize professional service providers that help.

Property Tax Changes
Many of the proposals laid out Tuesday were targeted at the property sector, including reiterating plans to tax the largest property developers to help pay for the costs of replacing flammable cladding on buildings. More than 70 people died in 2017 when the flammable cladding on the Grenfell Tower in London caught fire. A review found that hundreds of other buildings around the country had similar cladding.

The U.K. is proposing consulting on ways to make the exemption for the sale of land and property value-added tax clearer. The exemption affects the ability to recover VAT expenses in the purchase and sale of land or property and can often lead to errors.

The government also proposed changing its rules for business rates—a type of commercial property tax—making it harder to avoid paying the rate when rentals are empty.

“If you have a second home that you’ve been telling HMRC is a holiday let for tax purposes, then changes afoot could throw a spanner in the works,” Sarah Coles, personal finance analyst for Hargreaves Lansdown said. “In future it looks like you’ll have to prove how long your holiday let has been rented to other people during the year. And if you don’t really rent it out, it will be taxed as a second property.”

The government also published a response document to its July 2020 consultation into business rates. The government considered a change to a capital value-tax model, which was opposed by businesses that argued it could be disruptive and require leases are to be renegotiated.

Tax Timing Changes
The government outlined a proposal to make self-employed individuals and small businesses pay income tax and social security contributions on a regular basis, rather than twice a year. The consultation will run until July 13.

Any changes wouldn’t be implemented immediately, the government said, citing the continuing economic hit from the pandemic. “If change happens it will be reforming and not revolutionary: gradual, structured over the longer term, and carried out in close collaboration with stakeholders,” it said.

The proposal could have implications for cash flow for small businesses, removing the benefit enjoyed under the current system, said Dominic Stuttaford, EMEA head of tax at Norton Rose Fulbright.

It could also place a greater administrative burden on smaller businesses, he said.

Source: Bloomberg Business News