Taxation and other measures, to be included in the Finance Bill for 2021/22, have now been announced.
The draft legislation largely covers pre-announced policy changes, along with accompanying explanatory notes, tax information and impact notes, as well as responses to consultations and other supporting documentation.
What follows here, is a summary of the key measures we think pertinent to the businesses and individuals that we work with.
Taxation of trading profits for Unincorporated Businesses
The Government propose to alter the way in which trading income is allocated to tax years. The reforms will see a change from the ‘basis period’, whereby currently an unincorporated business is taxed according to its profit or loss for the year up to its accounting date, to a ‘tax year basis’.
It is suggested that this will simplify taxation of trading profits and bring it in line with the way in which other forms of income are taxed.
With effect from 2023/24, the tax year basis will mean that a business will be taxed on the profit or loss arising in the tax year 6 April 2023-5 April 2024.
The impact will only affect those businesses not currently drawing up annual accounts to either 31 March or 5 April, and those who have only recently begun to trade.
Example:
A sole-trader has a year end of 30 June. Following the reforms, income tax for 2023/24 will be based on 3/12 of the income for y/e 30 June 2023, and 9/12 of the income for y/e 30 June 2024. This is instead of the tax being based on the profits in the business’s accounts for y/e 30 June 2023.
Pension benefits
It is confirmed that the normal minimum pension age, at which pension benefits can be taken without incurring an unauthorised payment charge, will increase from 55 to 57 from April 2028.
Corporation Tax
Under a Corporation Tax heading, draft clauses and documents were published covering Structures & Buildings Allowance (SBA), taxation of asset holding companies, real estate investment trusts and amendments to the hybrid and other mismatches rules.
Key points in respect of these measures include:
- The Government propose an amendment to the SBA allowance statement to ensure subsequent owners do not stop claiming the allowance too soon, where they are entitled to continue to claim for a longer period.
- Hybrid and mismatches rules will be subject to a minor alteration, in an attempt to ensure that counteractions applied where tax mismatches arise as a result of different jurisdictions operate as intended.
Tackling tax avoidance
HMRC published a summary of responses to its proposals made earlier this year for measures to clamp down on promoters of tax avoidance. Four new measures are being introduced as follows:
- 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 breaching anti-avoidance obligations.
- New rules that would enable HMRC to charge a UK entity, that facilitates the promotion of tax avoidance by offshore promoters, a significant additional penalty.
- A new power to enable HMRC to present winding-up petitions to the courts for companies operating against the public interest.
- New legislation that would enable HMRC to name promoters, details of the way in which they promote tax avoidance and the schemes they promote, to warn taxpayers of the risks and help those already involved.
How can George Hay help?
If you would like to discuss any of the measures proposed in the draft legislation for Finance Bill 2021/22, we would be pleased to hear from you.
We realise, in particular, that the change to the taxation of trading profits has the potential to impact many businesses across the UK.. It should be noted that these proposals are currently out for consultation and last week the leading tax professional bodies made a robust case for delaying its implementation.
Our advisers are perfectly placed to explain the tax year basis to you in layman’s terms, and what this will mean for your tax liabilities.
To talk to one of our friendly, professional team of chartered accountants and business advisers in Cambridgeshire, Bedfordshire or Hertfordshire, contact us today.
Link: Finance Bill 2021-22
